Three men were arrested May 14 and charged in the U.S. District Court for the District of New Jersey with defrauding an investor of approximately $6.7 million by falsely claiming to have special access to shares in Facebook Inc. (FB) prior to the entity's initial public offering (United States v. Weinstein, D. N.J., Mag. No. 13-8148, 5/14/13).
In a release, U.S. Attorney Paul J. Fishman said one of the men--defendant Eliyahu Weinstein--faces additional charges for allegedly committing the fraud while under indictment in New Jersey for a separate, unrelated scheme.
Counsel to Weinstein and his co-defendants Alex Schleider and Aaron Muschel could not be reached immediately for comment.
“According to the charges, the defendants took advantage of the buzz around the Facebook IPO to fleece unsuspecting investors," Fishman said in the release. "Shamelessly, Eliyahu Weinstein allegedly committed these crimes while under federal indictment for another investment scheme, even using stolen money to pay his legal fees. Today's arrest should put an end to his brazen conduct."
Allegedly, in February 2012, the defendants offered investors the opportunity to purchase large blocks of Facebook shares prior to the company's May 2012 IPO. “The offer was particularly attractive because large blocks of the shares were extremely difficult to get, and they were expected to increase in value at the time of the IPO.” However, prosecutors alleged, “Weinstein, Schleider and Muschel did not actually have access to the shares.”
According to the charges, based on the defendants' misrepresentations, an investor victim--identified only as G.C.-- “wired millions of dollars … to an account Weinstein and a conspirator controlled. … The conspirators did not use any of G.C.'s money to purchase Facebook shares, instead misappropriating it for their own use and benefit by moving it through various accounts.”
Prosecutors also noted that throughout the alleged scheme, Weinstein, who was under indictment and on pretrial release, was barred from engaging in any monetary transaction for more than $1,000 without the approval of a court-appointed special counsel. Earlier this year, he pleaded guilty to charges he ran a real estate investment scheme that caused $200 million in losses.
In this case, each of the defendants faces decades in prison and hefty money penalties. The government also is seeking forfeiture of all fraudulently obtained funds, “including three pieces of real property allegedly maintained with the proceeds of the scheme.”
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