The United States Securities and Exchange Commission (SEC) is investigating possible fraudulent trading of Facebook Inc (NASDAQ:FB) stock, prior to the initial public offering (IPO) of the social network giant.
A report from CNET cited that the Commission issued a subpoena to Paul Tabet, manager of Venture Trust II LLC, demanding the company submit the financial records of the venture capital firm related to its trading activities of Facebook stock.
The report cited that the SEC wants to find out if Tabet and Craig Berkman, another fund manager, indeed raised $3 million to buy Facebook shares, and if they really invested the money.
SEC lawyers told the federal judge that Tabet allegedly used fake documents, claiming that Ventures Trust owned direct interest of Facebook’s pre-IPO shares, in order to solicit funds from investors. The lawyers said, “Staff has obtained evidence that a forged letter on law firm letterhead stating that Ventures Trust owned a direct interest in almost 500,000 pre-IPO shares of Facebook Inc (NASDAQ:FB) was apparently used to solicit Ventures Trust investors. Staff has evidence indicating that the forged letter was attached to an e-mail sent by Paul Tabet to at least one potential investor.”
According to SEC spokesman John Nester, if the investigation found that Tabet violated certain SEC regulations, the enforcement division of the commission will recommend the filing of legal charges against him.
Some of the evidences found by the SEC revealed that Tabet took more than $1 million from the bank accounts of Ventures Trust, and he transferred $23,000 to the bank account of Jenifer Tabet.
Tabet responded to the SEC subpoena, and described it as an “overly broad, oppressive, and warrantless search and seizure.”
Based on the 2010 SEC filing of Ventures Trust II Llc, Craig Berkman is a managerial consultant and senior advisor of the firm’s management company, Ventures Trust Management Llc. The firm is based in Florida.
In the past, Berkman admitted that he loaned himself $5 million from his client’s money, but he did not disclose it to them. He said, “The loans and my failure to disclose them fully and in a timely manner, gives the appearance of wrongdoing, and I deeply regret that.” Berkman fled to Florida to avoid paying his financial obligations from his creditors.
The Facebook Inc (NASDAQ:FB) IPO has been controversial because of the technical failures during the day of the offering. Investors filed a lawsuit against Nasdaq, due to losses incurred from the technical glitches.
We mistakenly stated that Knight Capital had filed suit against Nasdaq for the technical glitches. Knight Capital has in fact endorsed Nasdaq’s compensation plan for investors who lost money, due to technical failures during Facebook’s IPO.