The Securities and Exchange Commission today filed an emergency enforcement action to stop a fraudulent scheme targeting investors seeking coveted stock in Internet and technology companies like Facebook and Groupon in advance of a public offering.
The SEC alleges that Florida resident John A. Mattera and several other individuals carried out the scam using a newly-minted hedge fund named The Praetorian Global Fund. They falsely claimed that the fund and affiliated Praetorian entities owned shares worth tens of millions of dollars in privately-held companies that were expected to soon hold an initial public offering (IPO) including Facebook, Groupon, and others. Taking advantage of investor interest in pre-IPO shares that are virtually impossible for company outsiders to obtain, Mattera and others solicited funds and gave investors a false sense of comfort that their money was protected by telling them that an escrow service was receiving their funds.
In reality, according to the SEC’s complaint filed in federal court in Manhattan, Mattera and his cohorts never owned the promised pre-IPO shares in these companies. The purported escrow service, headed by John R. Arnold of Florida, merely transferred investor funds to personal accounts controlled by Mattera and Arnold. After Arnold took a cut of the money for himself, Mattera stole most of the remaining funds to afford his lavish personal expenses and pay others for their roles in the scheme.