One-time Oregon political leader Craig Berkman is heading to prison for six years after being sentenced on fraud charges related to the IPOs of highly sought-after social media and tech companies.
Berkman was able to convince over 120 investors to hand over more than $13 million between 2011 and 2012 – before the public offerings of such well-known companies as Facebook, Groupon, LinkedIn and Zynga, according to court documents. The most well-known of his Ponzi scheme-like stunts was when he convinced investors he had access to Facebook shares before they were offered to the public.
The former gubernatorial candidate from Oregon pleaded guilty in June to charges in the U.S. District Court in New York City. As part of the plea, Berkman promised to pay $8.4 million to the investors – many of whom live in the U.S. South, according to a report from The Oregonian. Berkman used the money from the fraud partially to repay victims in an earlier fraud case and pay off his debts, prosecutors claim.
The Securities and Exchange Commission (SEC) once described Berkman as a “financier masquerading as a sophisticated fund manager.”
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“Berkman blatantly capitalized on the market fervor preceding highly anticipated IPOs of Facebook and other social media companies to fleece investors whose cash flow he treated like an ATM to fund his own living expenses and pay court-ordered claims to victims of his past misdeeds,” Andrew M. Calamari, director of the SEC’s New York office, said in a statement earlier this year.
However, he appeared to be a more humble man when he appeared before a federal judge for sentencing this week. "I am sincerely sorry, and I take full responsibility for the negative consequences of my behavior," Berkman said in court on Monday, according to a report from Reuters. The charges against him include securities and wire fraud.
Prosecutors had tried to get a longer sentence against him – but appeared pleased he is heading to prison.
“For several years Craig Berkman repeatedly lured investors with the false promise of benefiting from his companies’ ownership of pre-IPO stock all the while draining their money into his own pockets in a fraud that was part Ponzi scheme and part plain old theft," said U.S. Attorney for the Southern District of New York Preet Bharara. "He is now paying a heavy price for his lies, forfeiting both his liberty and his money, and today’s sentence is a just and fitting conclusion to the multimillion-dollar fraud he perpetrated.”
This has not been Berkman’s first brush with the courts. In 2008, an Oregon jury found Berkman liable in a private case charging him with breach of fiduciary duty, conversion of investor funds and misrepresentation to investors, the SEC said. It led to a $28 million judgment against Berkman, court records state.
It appears that federal prosecutors are taking these kinds of fraud cases seriously – and want to get convictions. Also, fraud cases – especially following the sentencing of Bernie Madoff – certainly send a warning to investors that if sounds too good to be true it probably is. Companies like Facebook need to generate enthusiasm to increase the price they get for shares in any IPO. Be careful not to get caught up in the frenzy. Investors need to be aware there are no shortcuts. In the end, they could end up losing everything. Billions of dollars were lost from Madoff’s scam – leading to what may be the largest financial fraud ever in the United States.
A good rule of thumb from the Buffalo News: “If you don’t understand how your money will make money, don’t invest. Don’t listen to the promise of returns, no matter how good they sound.”
Edited by Alisen Downey