The SEC just announced a bust of Praetorian Global Fund, which is ostensibly a hedge fund, but really, a scam built to shamelessly exploit a cross-section of the stupidest, greediest, and most inexperienced tech investors they could find. The proprietor of the scam was Florida’s finest—because, where else?—one John A. Mattera, who along with his buddies claimed he held shares of pre-IPO companies including but not limited to both Facebook and Groupon. Not like they’d have any problem getting those, right? Especially since even the SEC notes that these shares are “virtually impossible for company outsiders to obtain.” And John A. Mattera isn’t exactly a company insider or Groupon and Facebook. Because he’s a guy in Florida with a “hedge fund,” is why.
So Mattera gets money from “investors”—or greedy Floridians senile enough to think they know how these computer machines and their stocks work, or senile enough to think they’re investing with someone who has access to them—and he obviously just invests it in something that ostensibly looks like these companies to hide it from the SEC and produce enough returns to keep the authorities from busting him, right? Wrong again! Mattera starts ballin’ out of control:
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…George S. Canellos, Director of the SEC’s New York Regional Office: “Even as investors believed their funds were sitting safely in escrow accounts, Mattera plundered those accounts to bankroll a lifestyle of private jets, luxury cars, and fine art.”
Womp womp. Even Mark Zuckerberg drives a lame car. How’d these guys think they’d get away with otherwise? How’d they even get these people to invest with them in the first place? One of the Praetorian feeders, Joseph Almazon—an unregistered broker-dealer in the Long Island-based (of course) Spartan Capital Partners—had a uniquely high-tech approach to helping round up his share of $12M that went into Praetorian:
The SEC’s complaint alleges that Spartan Capital solicited investments by phone, word of mouth, and advertisements on professional networking website LinkedIn.com. One advertisement read in part: “[Spartan] can offer the opportunity to buy pre-IPO shares of the following companies: Facebook, Twitter, Zynga, Bloom Energy, Fisker, and Groupon.” Another ad stated: “We have access to Fisker Auto, Groupon, Ren Ren, Bloom Energy and many more! Unlike most of the other investment banking firms, we let you sell your shares right at the open! You also do not need to be in NY to invest in our IPOs!”
Uh, for the record, that’s impossible? Especially from an unregistered broker-dealer based in Long Island, which is basically like a Real Housewives episode with an eTrade account. Lesson: Not only do old people not understand computers, they don’t understand money as it has to do with computers, and those are just the people who are conned. Surely, the defense the iGoodfellas will mount will be one of ignorance, but in order to not understand that what they were doing was illegal, they’d have to have a motherboard lodged through their forehead. Furthermore, companies like SecondMarket have actually issued warnings about the proliferation of scams like these; they did so in an email they sent to users back in March. And this bust is totally unsurprising, seeing as how these advertisements are so blatant and not-at-all-cunning as to be advertising Facebook shares on Facebook. Maybe that’s when the SEC started paying attention? And maybe there are more busts like this to come?
Whatever the case: People are so dumb and greedy. It’s kind of great—or at least wildly entertaining—when they meet an apex like this. BetaBeat reccomends not feeling empathy for anybody involved.