A Florida fund manager admitted on Tuesday to tricking investors out of $13 million by falsely telling them he had put their money in coveted shares of Facebook Inc and Groupon Inc before the Internet companies went public.
John Mattera pleaded guilty to transferring $11 million from investors into an escrow account, rather than safeguarding it ahead of the initial public offerings, and taking an additional $2 million of investor money.
Prosecutors said he did not hold shares of the companies' private stock while chairman of the advisory board of Praetorian Global Fund Ltd. They said he spent nearly $4 million of investors' money on luxury cars, jewelry, personal taxes and a lawsuit settlement.
As part of his plea in Manhattan federal court, Mattera, 50, agreed to pay restitution to the defrauded investors and forfeit $13 million.
U.S. District Judge Richard Sullivan in Manhattan ordered Mattera jailed pending his sentencing. Mattera had missed a date in court on Monday for the plea hearing and he also has been cited for contempt in a civil case brought against him by the U.S. Securities and Exchange Commission.
Mattera faces a potential 10 to 15-1/2 years in prison under a plea agreement with prosecutors.
In court, Mattera described how investors had sent money into what he and others described as escrow accounts at a Florida bank in 2010 and 2011. The investors had been told they could invest in Facebook and Groupon while they were still private, and that their money would be held in the accounts until the companies went public.
He said he told investors that his fund "had shares when in truth and fact we did not acquire the shares." Asked by the judge whether the intention was to keep investors in the dark, Mattera replied: "Yes, correct. Absolutely."
At the time, Facebook was being closely watched by Wall Street in anticipation of an IPO. The company ultimately went public in May at $38 a share, but the stock has fallen sharply on concern about its valuation and growth prospects. Shares of Facebook were up 1.3 percent to $22.28 in Tuesday afternoon trading on the Nasdaq.
Groupon debuted in November 2011 at $31.14, but it has lost much of its value. Its shares were down 1.5 percent at $4.65 in Tuesday afternoon trading.
Mattera's tentative sentencing date is Feb. 1, 2013.
The cases are USA v John Mattera, U.S. District Court for the Southern District of New York, No. 12-00127 and U.S. Securities and Exchange Commission v Mattera et al No. 11-08323.
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