A former Florida investment fund manager recently acknowledged his role in a $13 million securities fraud scheme by pleading guilty to felony charges. Specifically, he pled guilty to one count, each, of securities fraud and wire fraud. For each count, he may receive up to 20 years in prison and millions of dollars in fines.
In the three years leading up to the scheme, the man served as a managing member of various limited liability companies. The man offered units in these LLCS to investors, claiming that the entities were poised to purchase shares in big name technology companies — such as Facebook, Groupon, or LinkedIn — before their respective pre-initial public offerings.
It may seem incredible, but the man was able to attract 120 different investors and over $13 million dollars without ever acquiring any pre-IPO shares in the technology companies. In some ways, the fraud was like a pyramid scheme. For example, the man used $4.8 million of the funds to pay off earlier investors. Another $6 million was used in his own personal bankruptcy case, to pay of his substantial creditors.
The fact that not one of the investors apparently felt it necessary to seek a second opinion from an independent third party speaks to the level of trust many investors place in their stockbrokers, brokerage firms or other types of financial consultants. Courts and lawmakers are cognizant of that trust, which is why the penalties can be so severe when a stockbroker is found to have breached his or her fiduciary duty to investors.
Source: lawfuel.com, “Florida Investment Fund Manager Pleads Guilty to Connection with $13 Million Securities Fraud,” June 25, 2013