* Berkman allegedly misled investors pre-Facebook IPO
* Charged with four criminal fraud counts by U.S. Attorney
* SEC files related civil charges
By Bernard Vaughan
NEW YORK, March 19 A former Oregon gubernatorial
candidate was arrested on Tuesday for his alleged role in
defrauding investors who had hoped to buy shares of Facebook Inc
before its initial public offering in May 2012, federal
Craig Berkman, 71, falsely told investors he had access to
scarce pre-IPO shares of Facebook and other social media
companies such as LinkedIn Corp, Groupon Inc
and Zynga Inc, the U.S. Securities and Exchange
Commission said in a statement.
But instead of buying shares for investors as promised,
Berkman made "Ponzi-like" payments to earlier investors and
funded personal expenses, including costs in a bankruptcy case,
according to the SEC, which filed a civil case.
The defendant received at least $8 million from various
schemes, according to U.S. Attorney Preet Bharara in Manhattan,
which filed criminal charges against Berkman.
"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," said
Andrew Calamari, director of the SEC's New York office.
Berkman was arrested at his home in Odessa, Florida, and
appeared briefly before a federal magistrate in Tampa, Florida.
A bond hearing was scheduled for Thursday in Tampa.
The Manhattan U.S. Attorney's Office charged Berkman with
two counts of securities fraud and two counts of wire fraud.
Each count carries a maximum of 20 years in prison.
In one allegation, more than 50 investors sent $4.6 million
into a bank account controlled by a Berkman entity called
Ventures Trust II, according to the complaint filed by the
Manhattan U.S. Attorney's Office.
Berkman told investors the funds would be used to buy
pre-IPO shares of Facebook, but instead the "vast majority" was
transferred to other accounts Berkman controlled for his own
personal benefit, according to the complaint.
Berkman has long been active in Oregon politics and served
for a time as the head of the state's Republican Party,
according to press accounts. He lost in the Republican primary
for governor in 1994, and he explored a bid for governor in the
2002 race, according to The Oregonian.
The SEC's order details what the agency called a "recidivist
history" for Berkman.
The Oregon Division of Finance and Securities issued a
cease-and-desist order and a $50,000 fine against Berkman in
2001 for offering and selling convertible promissory notes
without a brokerage license, according to the SEC statement.
In 2008, an Oregon jury found Berkman liable in a private
action for breach of fiduciary duty, conversion of investor
funds and misrepresentation to investors related to his
involvement with a purported venture capital firm, according to
Berkman reached a settlement with the firm, called Synectic
Ventures, after it filed an involuntary Chapter 7 bankruptcy
petition against him in 2009 for debts he didn't pay related an
earlier judgment against him for $28 million, according to the
Rather than use his own money to pay the claims, Berkman
spent more than $5.4 million from investors in his pre-IPO
offerings to make payments in the bankruptcy settlement,
according to the SEC.
The SEC brought a separate case against John Kern of
Charleston, South Carolina, whom it said took part in the fraud
as legal counsel to some of Berkman's companies.
Marc Blackman, a lawyer for Berkman, was not immediately
available for comment.
It was not immediately clear whether Kern has hired a lawyer
for his defense. Kern was not immediately available for comment.
The criminal case is U.S. v. Berkman, U.S. District Court,
Southern District of New York, No. 13-mg-00732.