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Thomas O. Gorman,
Dorsey and Whitney LLP
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Gorman.tom@Dorsey.com

 
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    Former Political Figure, Recidivist, Charged by SEC, USAO with Fraud

    Craig Berkman, a former Oregon political figure and repeat securities law violation was charged by the U.S. Attorney’s Office in Manhattan and the SEC with operating an investment fund fraud. Investors were solicited with fraudulent claims about purchasing pre-IPO interests in popular stocks such as Facebook, Inc. In reality their money was never invested in shares of that company. It was misappropriated by Mr. Berkman.

    Beginning in late 2010 told investors that Ventures Trust II, LLC, an entity Mr. Berkman controlled, owned shares of Facebook. At the time Facebook had yet to conduct its IPO. In fact the firm never owned an interest in Facebook securities with the sole exception of a small interest in a fund which did own securities of the company. That interest was revoked, however, when Mr. Berkman was caught using a forged letter purporting to be from the law firm that represented the fund which actually did own the shares to help sell interest in Ventures Trust II.

    Following Facebook’s IPO investors attempted to redeem their shares in the Trust. A lawyer acting on behalf of Ventures Trust wrote to the investors, insisting that it owned the shares. The representation was false. Mr. Berkman, and others assisting him, raised over $5.5 million from over 50 investors through this scheme.

    A second scheme centered on selling interests in Face Off Acquisitions LLC. Potential investors were told that Face Off was about to acquire an entity which owned more than 1 million Facebook shares. The acquisition would cost between $40 and $50 million investors were told. They were also informed that a billionaire had already committed to invest in Face Off. All of these representations were false. Mr. Berkman raised about $2.5 million from 14 investors through this scheme. He misappropriated much of the money raised in each scheme.

    Mr. Berkman served from 1989 to 1993 as the chairman of the Oregon Republican Party. In 1994 he unsuccessfully ran for governor. In 2001the Oregon Division of Finance and Securities issued a cease and desist order against him for offering and selling convertible promissory notes without a brokerage license to Oregon residents from 1983 through 1997. In June 2008 an Oregon jury found him liable for breach of fiduciary duty, conversion of investor funds and making misrepresentations to investors. A $28 million judgment was entered against him. Subsequently, in a Florida bankruptcy proceeding, he had three judgments entered against him which were non-dischargeable totaling about $15 million. Those were eventually paid with the final installments coming from the investor funds in this case.

    A criminal complaint in New York charges Mr. Berkman with two counts of securities fraud and two counts of wire fraud. He was arrested in Florida. The SEC brought an administrative proceeding against Mr. Berkman, John Kern, an attorney who facilitated the schemes, and twelve entities he utilized. The Order for Proceedings alleges violations of Securities Act Section 17(a), Exchange Act Section 10(b) and Advisers Act Sections 206(1), 206(2) and 206(4). In the Matter of Craig Berkman, Adm. Proc. File No. 3-15249 (March 19, 2013).

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