The Securities and Exchange Commission today charged Craig Berkman, 71, a former Oregon gubernatorial candidate who now lives in Florida, and his lawyer, with operating an investment scam peddling pre-IPO shares in Facebook, LinkedIn, Groupon, and Zynga.
An SEC investigation, which led to the cease-and-desist proceedings started today, found that between October 2010 and September 2012, Berkman fraudulently raised at least $13.2 million from approximately 120 investors by selling membership interests in limited liability companies that he controlled.
According to the SEC filing, Berkman represented to investors that he had special access to pre-IPO stock in high-tech companies that were about to go public. Instead of purchasing shares on investors’ behalf as promised, Berkman misused their investments in Ponzi–scheme fashion, including approximately $5.43 million to satisfy a bankruptcy judgment against him and another $4.8 million to investors who had invested either in this pre-IPO scheme or in other schemes. Berkman also used approximately $1.6 million to fund his own personal expenses, including large cash withdrawals and dining and travel expenses.
Also charged in the case is John B. Kern, 49, of Charleston, S.C., a lawyer and general counsel to Berkman's companies who aided and abeted the fraud by making "certain material misstatements to investors that he knew or recklessly disregarded were false and misleading," the SEC charged.
Berkman, who FORBES included in a 2009 "Venture Rogues Gallery," has a history of prior securities law violations as far back as 2001. In June 2008, an Oregon jury found Berkman liable in a private action for breach of fiduciary duty, conversion of investor funds, and misrepresentation to investors, among other things. The court entered a $28 million judgment against him.
The latest case is reminiscent of one the SEC brought last Fall against John A. Mattera. It too, involved fraudulent offerings of pre-IPO shares in Facebook, Groupon and LinkedIn. (See my post, "SEC Sues Mattera, Others In Alleged Investment Scam.") He also had a history of a previous SEC enforcement action.
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Deborah L. Jacobs, a lawyer and journalist, is the author of Estate Planning Smarts: A Practical, User-Friendly, Action-Oriented Guide. You can follow her articles on Forbes by clicking the red plus sign or the blue Facebook “subscribe” button to the right of her picture above any post. She is also on Twitter and Google+
