Former Oregon politician pleads guilty to FB IPO fraud

Craig Berkman admits to securities fraud and wire fraud for selling phony Facebook shares

Remember when Facebook IPO became a giant mess, filled with lawsuits, investigations and accusations of insider trading? Doesn't it seem like we quickly forgot about all of that?

Well, now there is finally some good news for those who hate both financial institutions: someone is actually going to jail over the Facebook IPO. And for bonus points: it is also a former politician!

Craig Berkman, a one-time Republican candidate for Governor of Oregon, has pled guilty to one charge of securities fraud and one charge of wire fraud, for scamming investors by selling them phony shares of Facebook stock, according to a release put out by the United States Attorney for the Southern District of New York on Tuesday. 

Berkman, while serveing as the managing member of a series of limited liability companies, which he effectively controlled, including Face-Off Acquisitions, told investors that he had access to pre-IPO shares of Facebook, along with LinkedIn, Groupon and Zynga, was actually using that money to pay off earlier investors. That, my friends, is what is known as a Ponzi scheme (see: Madoff, Bernie for another example).

Berkman collected a total of $13.2 million from more than 120 investors, money that he agreed to give up as part of a plea deal.

He also used the money to pay off his own personal expenses, which included $6 million that he owned in a personal bankruptcy case. He also used approximately $4.8 million of the money to pay off earlier investors, and approximately $1.6 million on legal fees, travel, other personal expenses, and in cash withdrawals.

Each charge that Berkman pled guilty to carries a maximum sentence of 20 years in prison. He will be sentenced on October 1st.

“Through various misrepresentations, Craig Berkman enticed investors with highly coveted investment opportunities, and then swindled them out of millions of dollars, using much of it for his personal benefit. Today’s guilty plea ensures that he will be held to account for his conduct," Manhattan U.S. Attorney Preet Bharara said in a statement. 

Berkman is a former chair of the Oregon Republican Party.  He ran for chairman of the Republican National Committee in 1993, losing to Haley Barbour, and for Governor of Oregon in 1996, losing to to Denny Smith in the primary election.

The Facebook IPO mess

For all of the ugliness that came out of the Facebook IPO last year, this is the first time I can remember someone actually going to jail for being a part of it.

For example, there were accusations that Morgan Stanley, and the other underwriters, had cut their forecasts at Facebook's behest, and then had only told their top clients. The result was a $5 million fine.

Meanwhile, Nasdaq was sued for technical glitches that caused them to fail to cancel orders and complete trades on time. Loses were estimated to be at least $100 million. The result was a $10 million fine.

Facebook could not be reached for comment. 

(Image source: https://www.thetimes.co.uk)