Reuters: Technology News: Former Oregon politician pleads guilty to Facebook IPO fraud

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Former Oregon politician pleads guilty to Facebook IPO fraud Jun 25th 2013, 17:11 The Facebook logo is pictured in the Facebook headquarters in Menlo Park, California January 29, 2013. Credit: Reuters/Robert Galbraith By Bernard Vaughan NEW YORK | Tue Jun 25, 2013 1:11pm EDT NEW YORK (Reuters) - Former Oregon gubernatorial candidate Craig Berkman pleaded guilty on Tuesday to defrauding investors by persuading them he could use their money to buy shares of Facebook Inc before the company's May 2012 initial public offering. Berkman, a Republican who ran for governor in 1994, admitted he told investors he had access to scarce pre-IPO shares of Facebook as well as LinkedIn Corp, Groupon Inc and Zynga Inc. Instead, Berkman used investors' money to make payments to earlier investors - a classic Ponzi scheme - and to pay personal expenses, including $6 million in a personal bankruptcy case, Assistant U.S. Attorney John O'Donnell said at a hearing in federal court in New York. Berkman pleaded guilty to one charge of securities fraud and one charge of wire fraud. Each carries a maximum sentence of 20 years in prison. "I deeply regret my actions," a weeping Berkman, wearing beige jail scrubs, said at the hearing on Tuesday. "I've devastated my family." He apologized to his investors, saying some of them were "dear, dear friends." "I'm very, very sorry," he said. U.S. Magistrate Judge Kevin Nathaniel Fox set sentencing for October 1. As part of a plea deal, Berkman agreed to forfeit $13.2 million he raised from more than 120 investors. Berkman had long been active in Oregon politics and served for a time as the head of the state's Republican Party. He lost in the Republican primary for governor in 1994. He explored a bid for governor in 2002, according to the newspaper The Oregonian. Berkman was arrested in March at his home in Odessa, Florida. "RECIDIVIST HISTORY" Berkman's scam was similar to one perpetrated by former Florida fund manager John Mattera, who defrauded investors of $13 million by telling them he could invest their money in pre-IPO shares of Facebook and Groupon. Mattera was sentenced to 11 years in prison on June 21. Berkman's guilty plea culminates what the U.S. Securities and Exchange Commission had called a "recidivist history." In 2001, the Oregon Division of Finance and Securities issued a cease-and-desist order and a $50,000 fine against Berkman for offering and selling convertible promissory notes without a brokerage license, according to the SEC. 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 firm called Synectic Ventures. The criminal case is U.S. v. Berkman, U.S. District Court, Southern District of New York, No. 13-mg-00732. (Reporting by Bernard Vaughan; Editing by John Wallace) Link this Share this Digg this Email Reprints

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