This week prosecutors have their hands full of guys who just couldn’t resist dipping into investor funds to pad their pockets. The result? Several separate fraud indictments, as well as a 42-month sentence for one CEO and a $600 million SEC settlement levied against another firm.
Defrauding Investors to Pay…Your Bankruptcy Lawyer?
A Florida investment advisor was arrested Tuesday after he allegedly used $8 million raised by investors for personal gain, including to fund histeam during a personal bankruptcy.
Prosecutors claim Craig Berkman—a one-time Oregan gubernatorial candidate who was arrested at his home in Odessa, Florida— created two companies Ventures Trust II and Face Off Acquisitions with the stated intention of acquiring and holding Facebook shares prior to the company’s much-anticipated IPO.
By falsely claiming Ventures had acquired Facebook shares, the SEC’s civil complaint claims Berkman raised $5.5 million from unsuspecting investors that went directly to line the Florida advisor’s pockets. Berkman also allegedly used the $2.5 million raised from Face Off clients in the same manner.
Repeat Offender Fancies Fraud
Previously convicted for defrauding an elderly relative, a Boston man was back in court on Monday on charges he and his wife ran a multi-million Ponzi scheme that funded Bahamas vacations, gambling debts and rent for a mistress.
According to Boston police, Steven and Lori Palladino fraudulently enticed investors to invest in their business, Viking Financial Group, which allegedly provided loans at a higher interest rate. Not only did the couple falsify their books regarding the number of loans issued, but several of the handful that were extended charged interest rates that vastly exceeded the 20 percent maximum allowed under state law.
In addition to funding the couple’s spending habits, Steven Palladino also used $350,000 of investor funds to settle a condition of his probation on a 2007 fraud conviction for swindling a family member. Palladino—called a “common and notorious thief” by the police—also has a record of more than 24 prior larceny convictions.
Couldn’t Keep His Hands Out of the Cookie Jar
Former Chairman and CEO of the New York boutique financial services firm West End Financial Advisors was sentenced to three and a half years in prison for his role in an $8.7 millionscheme.
Over the course of four months starting in January 2009, William Landberg obtained three loan advances from the German bank West LB totaling $8.7 million – investor funds purportedly for the firm’s West End/Mercury Short Term Mortgage Fund LP.
The fund was set up to “achieve short term, high-yield interest income through the making, servicing, purchasing, selling and repurchasing, and purchasing and selling participation in, mortgage loans,” according to prosecutors.
But instead of the money to purchase mortgage loans as the fund promised, Landberg allegedly diverted the millions for his own use, as well as to another fund managed by the firm.
As part of his sentence, a New York judge ordered Landberg to forfeit the $8.7 million, as well as pay $1.125 million in restitution.
Hedging Against The Odds of a Conviction
CR Intrinsic Investors—an affiliate of Steven Cohen’s hedge fund SAC Capital Advisors—agreed to pay more than $600 million to settle SEC claims that it profited from an insider-trading scheme connected to clinical trials for Alzheimer's drugs.
The regulator claimed that CR Intrinsic portfolio manager Mathew Martoma illegally obtained confidential details about clinical trial results from a participating doctor prior to public announcements by Elan and Wyeth.
The information gained by CR Intrinsic and Martoma—who is not part of the settlement and is participating in ongoing—induced several hedge funds to sell more than $960 million in Elan and Wyeth securities in a little more than a week.
The Stamford, Conn.-based hedge fund advisory firm neither admitted nor denied the charges, but agreed to pay approximately $275 million in disgorgement, $52 million in prejudgment interest, and a $275 million penalty.