The U.S. Securities and Exchange Commission (SEC) announced on March 19, 2013 that it charged a man with defrauding investors who sought to buy pre-IPO shares of Facebook and other social media companies. The SEC found that Craig Berkman, a former Oregon gubernatorial candidate who now lives in Florida, claimed that he ran an investment fund and that he had special access to pre-IPO shares in Facebook, LinkedIn, Groupon, and Zynga. Instead of purchasing shares as promised, Berkman engaged in investment fraud and simply used investors’ money to make Ponzi-like payments to earlier investors, fund more than $1.5 million in personal expenses, and pay off personal bankruptcy claims.

According to the SEC, Berkman raised at least $13.2 million from 120 investors by selling membership interests in limited liability companies. Berkman defrauded investors in three different sets of offerings. He falsely told the first set of investors he would use their money to buy pre-IPO shares of several social media companies. He misled the second set of investors into believing that their money would be used to buy pre-IPO shares of Facebook or acquire a company that held pre-IPO Facebook shares. In the third offering, Berkman falsely told investors that he would use their money to fund various technology ventures.

Berkman appears to be a repeat offender. Oregon securities regulators fined him $50,000 in 2001 for offering and selling securities without a brokerage license. In June 2008, a $28 million judgment was entered against Berkman after an Oregon jury found him liable for breach of fiduciary duty, conversion of investor funds, and misrepresentation to investors.

Investors should take time to investigate alleged financial professionals when deciding whether to entrust their savings to someone. Background checks and independently verifying representations can reveal red flags and can help investors avoid becoming investment fraud victims.

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