Berkman, 71, has spent this week in the Pinellas County jail, in Clearwater, Fla., following charges brought against him on Tuesday by both the Securities and Exchange Commission and federal prosecutors in New York. Berkman is accused of carrying out two separate securities fraud schemes in which investors were lured with the promise of Facebook stock.
According to the U.S. Attorney's Office for the Southern District of New York, Berkman's first scheme involved a company called Ventures Trust II, which Berkman created in late 2010. Berkman told investors that Ventures Trust II owned shares in Facebook, which had yet to go public at the time. More than 50 investors handed Berkman around $5.5 million. In August 2012, after Facebook's high-profile initial public offering, Berkman's investors began to try to redeem their investments, and a lawyer for Ventures Trust II wrote to them to reassure them that the firm still owned stock in the social network. Ventures Trust II "is not a Ponzi scheme," the lawyer allegedly told investors.
In the second, more recent scheme, Berkman set up a company called Face Off Acquisitions, which, he allegedly told investors, would acquire a New York firm that held 1 million pre-IPO shares of Facebook. Berkman allegedly told investors that he already had the backing of a prominent billionaire investor. Fourteen investors gave Berkman $2.5 million for Face Off Acquisitions.
According to prosecutors, neither Berkman nor his companies held the Facebook stock he allegedly represented to investors. He allegedly transferred the millions he got from investors to his personal bank account, and used a substantial portion of the money for his personal benefit and to help settle a previous bankruptcy case, prosecutors said.
Berkman was arrested Tuesday at his home in Odessa, Fla. The Tampa Bay Times reported Thursday that Berkman moved to Odessa several years ago, where he lived in a 12,000 square-foot, five-bedroom, eight-bathroom lakefront mansion. Campaign finance records compiled by the Center for Responsive Politics show that Berkman kept up at least some political activities in recent years. In 2007 and 2008, he gave tens of thousands of dollars to the Republican National Committee and the Republican Party of Florida, while additional thousands went to Republican presidential candidates John McCain, Mitt Romney, Mike Huckabee, and Rudy Giuliani.
Berkman had a prior run-in with securities law in 2001, when the Oregon Division of Finance and Securities issued a cease-and-desist order and $50,000 fine against him for offering and selling convertible promissory notes without a brokerage license.
In the federal criminal case, Berkman was charged with two counts of securities fraud and two counts of wire fraud. He faces a maximum sentence of 20 years in prison on each of the four counts in the complaint, as well as potentially millions of dollars in fines.