A Florida investment adviser has been arrested by Federal Law enforcement officials in New York for allegedly defrauding investors in an $8m securities fraud scheme that exploited demand for shares of the social networking site Facebook Inc (NASDAQ:FB).

Facebook Fraud Scheme

Craig L Berkman, 71, a former candidate of governor of Oregon fraudulently influenced the interest of plenty of investors in buying sharing of Facebook Inc (NASDAQ:FB) before its initial public offering in 2012 by faking an access to shares of the social network.

Berkman also allegedly misled investors about his access to shares of other social media companies before they went public, including LinkedIn Corp (NYSE:LNKD), Groupon Inc (NASDAQ:GRPN) and Zynga Inc (NASDAQ:ZNGA), according to the Securities and Exchange Commission.

“Berkman blatantly capitalized on the market fervour preceding highly anticipated IPOs of Facebook and other social media companies to fleece investors whose cash flow he treated like an ATM to fund his own living expenses and pay court-ordered claims to victims of his past misdeeds,” said Andrew Calamari, an SEC lawyer in New York.

Berkman is expected to appear in federal court in Tampa on Tuesday and likely to face up to 20 years in prison if convicted. Berkman’s lawyers at Ransom Blackman LLP in Portland did not immediately respond to a request for comment.

SEC alleges that Berkman raised $13.2 million from 120  investors, and he was using the fraudulently earned money to pay off earlier investors and fund his personal spending. Berkman also allegedly enlisted John Kern as legal counsel to help him succeed in his Pronzi-fraud. SEC intends to charge Kern for misrepresenting facts to clients and falsely assuring them that their funds was used to buy pre-IPO shares of Facebook Inc (NASDAQ:FB).

“Craig Berkman seized on the interest in a highly coveted investment opportunity to swindle investors out of millions,” said Manhattan U.S. Attorney Preet Bharara . “With his arrest, this Office continues our work to identify the perpetrators of financial fraud, hold them accountable, and protect investors.”

Prosecutors say Berkman took advantage of the excitement around Facebook’s IPO to dupe investors.