United States Attorney
Southern District of New York
Tuesday, March 19, 2013
Florida Investment Adviser Arrested in Connection with $8 Million Securities Fraud Schemes
Craig Berkman Falsely Claimed to Own and Intend to Acquire Pre-IPO Shares of Facebook
Craig L. Berkman was arrested today for committing two separate securities fraud schemes involving the purported sale of pre-Initial Public Offering (IPO) shares of Facebook Inc. stock that neither he nor the entities he controlled owned, announced the U.S. Attorney for the Southern District of New York Preet Bharara and the Acting Inspector-in-Charge of the New York Office of the U.S. Postal Inspection Service (USPIS) Richard T. Vignogna. Berkman received a total of at least $8 million from these schemes – the majority of which he misappropriated for his own benefit. He was arrested at his home in Odessa, Fla., this morning and is expected to be presented today in federal court in Tampa Bay, Fla.
“As alleged, Craig Berkman seized on the interest in a highly coveted investment opportunity to swindle investors out of millions. With his arrest, this Office continues our work to identify the perpetrators of financial fraud, hold them accountable and protect investors,” stated U.S. Attorney Bharara.
“Today's arrest of Mr. Berkman for allegedly using the popularity of the social networking site Facebook to defraud investors out of millions of dollars is an example of the investigative tenacity of Postal Inspectors to bring to justice anyone who uses the US Mail for fraud,” stated USPIS Acting Inspector-in-Charge Vignogna.
In a separate action, the U.S. Securities and Exchange Commission (SEC) announced civil charges against Berkman.
According to a criminal complaint unsealed today in New York federal court:
Beginning in December 2010, Berkman created Ventures Trust II LLC, a Delaware private equity investment limited liability company that he also controlled. He falsely represented to investors that Ventures Trust II owned shares in Facebook, which at the time was privately held. Owning interests in Facebook stock was a particularly attractive opportunity for investors because of the expectation that it would soon go public through an IPO.
In reality, Ventures Trust II never had any interest in Facebook except for a small indirect interest through another investment fund (Fund-1). In early 2012, Fund-1 discovered that Ventures Trust II management had been showing investors a forged letter that purported to be from Fund-1’s lawyer and which misrepresented Ventures Trust II’s true interest in Fund-1. As a result, Fund-1 terminated Ventures Trust II’s interest.
As recently as August 2012 – after Facebook’s IPO, when investors were beginning to try to redeem their investments – a lawyer acting on behalf of Ventures Trust II wrote to investors to reassure them that the company still owned Facebook stock through Fund-1 and insisted that Ventures Trust II “is not a Ponzi scheme.” Based on misrepresentations by Berkman and others, more than 50 investors sent approximately $5.5 million to various accounts in the name of Ventures Trust II, which were controlled by Berkman.
In a separate but related fraud, beginning in March 2012, Berkman created Face Off Acquisitions LLC, an entity that, according to its offering materials, was designed to acquire a New York-based LLC that already held more than 1 million pre-IPO shares of Facebook (Fund-2). Berkman told investors that the acquisition would cost approximately $40 to $50 million. He also falsely stated that a prominent billionaire investor had already committed to invest in Face Off, when in fact the billionaire investor had never heard of Face Off. Berkman obtained approximately $2.5 million from at least 14 Face Off investors and then falsely told those investors that Face Off had successfully acquired Fund-2, although he had held only exploratory conversations with Fund-2 intermittently over a period of about two years.
The approximately $5.5 million Berkman acquired from the Ventures Trust II investors and the approximately $2.5 million that he acquired from the Face Off investors were subsequently transferred to his personal account. Instead of using the investor funds to acquire shares of Facebook, Berkman misappropriated a substantial portion of the money for his own benefit and the benefit of others. He transferred several million dollars of investor funds to lawyers representing him in bankruptcy proceedings, apparently to fund an altogether different settlement with his creditors.
Berkman, 71, was arrested at his home in Odessa. He is charged with two counts of securities fraud and two counts of wire fraud. He faces a maximum sentence of 20 years in prison on each of the four counts in the complaint. He also faces a fine of the greater of $5 million or twice the gross gain or gross loss from the offense on the securities fraud charges, as well as fines of lesser amounts on the wire fraud charges.
U.S. Attorney Bharara praised the work of the Criminal Investigators of the U.S. Attorney’s Office and the USPIS, which jointly investigated this case. He also thanked the SEC.
This case was done in coordination with the President’s Financial Fraud Enforcement Task Force. The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. Over the past three fiscal years, the Justice Department has filed nearly 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,900 mortgage fraud defendants. For more information on the task force, please visit www.StopFraud.gov.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys John J. O’Donnell and Matthew L. Schwartz are in charge of the prosecution.
The charges contained in the complaint are merely accusations and the defendant is presumed innocent unless and until proven guilty.