A Florida man on Thursday was arrested and charged with running an $11 million scheme to dupe investors into believing that he could sell them shares of Facebook and Groupon before they went public.
John A. Mattera, who was alleged to have carried out the scam through a hedge fund called Praetorian Global Fund Ltd., was accused of telling investors that they could plunk money into an affiliate that owned shares of major privately-owned tech companies that would increase in value after an initial public offering.
Prosecutors said that Mattera, Praetorian, and the affiliate, called G Power Entities, held shares of stock in these companies. Nearly $4 million of the $11 million collected from investors went towards personal expenses such as jewelry and luxury cars for Mattera and his family.
Mattera told elaborate lies about stock he did not own and about how he would keep investors' money safe in escrow accounts, U.S. Attorney Preet Bharara of the Southern District of New York, said in a statement. Instead, Mattera took the investors' money to fund his own extravagant lifestyle.
Criminal Charges, and Civil Suit
In addition to the criminal charges, Mattera was also hit with a civil suit from the U.S. Securities and Exchange Commission. The securities regulator is seeking a court order to freeze assets of Mattera, four other individuals, and Praetorian and its affiliated entities.
Mattera's co-defendants include John R. Arnold, who headed the escrow service that held investor funds; Bradford Van Siclen and David E. Howard II, who were allegedly involved in pushing the fraudulent offerings; and Joseph Almazon, who controls an unregistered broker dealer called Spartan Capital Partners.
The civil suit alleged that Spartan Capital solicited investments through word of mouth and advertisements on the professional networking site LinkedIn.
One such advertisement read that investors could get the opportunity to buy pre-IPO shares of Facebook, Twitter, and social network game developer Zynga, among others.
Unlike most of the other investment banking firms, we let you sell your shares right at the open, the advertisement boasts, according to the SEC.
The SEC is seeking penalties and disgorgement of profit from the defendants.
In the criminal complaint, Mattera was charged with one count each of securities fraud, wire fraud, money laundering and conspiracy. He faces a $5 million fine, five years in prison for the conspiracy charge and 20 years in prison for each county of securities and wire fraud.
Mattera has been in the cross hairs of regulators before. The SEC in 2009 accused him of getting around registration requirements by backdating promissory notes, according to The New York Times. Mattera's lawyer, Carl F. Schoeppl, did not immediately return a request for comment.