SEC Charges Florida Resident With Fraud Relating to Social Media IPOs

The Securities and Exchange Commission (“SEC”) has charged Odessa, Florida-resident, and former Oregon gubernatorial candidate, Craig Berkman with allegedly perpetrating securities fraud on 120 investors. According to the SEC, from October 2010 to September 2012, Berkman raised approximately $13.2 million through three separate offerings of membership interests in limited liability companies he controlled. The SEC claims that Berkman falsely told potential investors that their money would be used to acquire pre-IPO shares of Facebook, LinkedIn, Groupon and Zynga.

The SEC’s Order Instituting Administrative and Cease-and-Desist Proceedings reflects that in 2008, an Oregon jury entered a $28 million judgment against Berkman in an action for breach of fiduciary duty, misrepresentation and conversion in connection with an entity called Synectic Ventures. Subsequently, Synectic filed an involuntary bankruptcy petition against Berkman that ultimately settled.

According to the SEC, instead of using investors’ funds to purchase pre-IPO shares of the social media companies, Berkman used $5.4 million from the pre-IPO investors to make payments on the bankruptcy settlement. In addition, the SEC alleged that Berkman used $4.8 million of investors’ funds to make payments to earlier investors in true Ponzi-scheme fashion. The SEC’s Order also claims that Berkman used $1.6 million of investors’ funds on personal expenses and travel.

The SEC’s Order also names as defendants the entities that Berkman controlled and John B. Kern of Charleston, South Carolina. Kern was the legal counsel to some of the Berkman controlled entities and was charged for his alleged participation in the securities fraud.