NEW YORK — A Florida investment adviser and onetime Oregon gubernatorial candidate cried as he pleaded guilty Tuesday in a $13 million securities fraud scheme that prosecutors say capitalized on enthusiasm for shares of Internet companies about to go public.
Craig L. Berkman, 71, of Odessa, Fla., entered the plea to securities fraud and wire fraud in U.S. District Court in Manhattan, agreeing to serve between eight and 10 years in prison, according to the terms of a written agreement between Berkman and prosecutors. Otherwise, he would have faced up to 40 years in prison.
Berkman, an Oregon GOP gubernatorial candidate in 1994 when he was a millionaire who had accumulated wealth by creating and selling high-tech companies, admitted that he falsely claimed to investors in December 2010 that he owned shares of Menlo Park, Calif.-based Facebook Inc., Chicago-based Groupon Inc. and Mountain View, Calif.-based LinkedIn Inc., among other companies.
“I deeply regret my actions,” a sobbing Berkman told a federal magistrate judge. “I have devastated my family. I apologize to them and to all the investors, and I am very, very sorry.”
Berkman, who served as Oregon’s state Republican Party chairman from 1989 to 1993, said he told investors their money would be used to buy shares of companies such as Facebook before their initial public offerings even though he knew he was over-representing the number of Facebook shares he owned.
“I also engaged in fraud and deceit,” he said. “I used the money invested with my companies for purposes other than purchasing pre-IPO shares of companies, as I had promised investors.”
Prosecutors say he pocketed much of the $13.2 million he received from more than 120 investors during the scheme, which stretched from 2010 until his March 2013 arrest. The government says he transferred the investors’ money into his personal account rather than using it to acquire shares of Facebook.
Berkman admitted in a statement he read aloud that he used “close to $6 million to pay creditors in a bankruptcy proceeding” even though he had falsely promised that the source of the funds paid was not investor funds that he controlled.
“I knew that I was not authorized to use investor funds for these purposes and I did not disclose to the investors that I used their funds for these purposes,” Berkman said.
Prosecutors said he used another $4.8 million to pay off earlier investors and spent another $1.6 million on legal fees, travel and other personal expenses, including cash withdrawals.
At one point, Berkman promised that he would not challenge the way the government organized charges in his plea.
“Yes, your honor,” he said. “And I want to thank the prosecution for their willingness to work with me in this matter.”
According to papers filed in March by the Securities and Exchange Commission, Berkman told California investors at a 2010 hotel meeting that he had access to Facebook employees who wanted to sell their shares of Facebook prior to the initial public offering. The SEC said Berkman promised investors he had access to shares worth millions of dollars.
“Through various misrepresentations, Craig Berkman enticed investors with highly coveted investment opportunities, and then swindled them out of millions of dollars, using much of it for his personal benefit,” U.S. Attorney Preet Bharara said in a release after the plea.
Berkman remains jailed pending a sentencing hearing scheduled for Oct. 1. He also will face restitution of $8.4 million and must forfeit $13.2 million, according to his agreement with the government.
The SEC in March recounted Berkman’s past financial issues, saying the Oregon Division of Finance and Securities issued a cease-and-desist order and $50,000 fine against him in 2001 for offering and selling convertible promissory notes without a brokerage license to Oregon residents.
It said an Oregon jury in June 2008 found Berkman liable in a private action for breach of fiduciary duty, conversion of investor funds, and misrepresentation to investors arising from Berkman’s involvement with a series of purported venture capital funds known as Synectic Ventures. The court entered a $28 million judgment against him.
In March 2009, Synectic filed an involuntary Chapter 7 bankruptcy petition against Berkman in Florida for his unpaid debts arising from the 2008 court judgment, the SEC said. The parties to the bankruptcy proceeding reached a settlement with Berkman, it added.