Bogus Facebook, Groupon IPO Busted

Jay Decenella, IT audit expert
November 21, 2011 /

The Securities and Exchange Commission has filed an emergency enforcement action to halt a sham pre-IPO purporting to be coming from Facebook and Groupon.

The fraudulent scheme targets investors who seek the stock in Internet and technology companies like Facebook and Groupon in advance of a public offering.

The scheme was revealed in a continuing investigation conducted by Karen Willenken, Michael Osnato, Richard Needham, and Yvette Quinteros of the New York Regional Office. The SEC’s litigation effort will be led by Preethi Krishnamurthy.

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. Falsely claiming that the fund and affiliated Praetorian entities owned shares worth tens of millions of dollars in privately-held companies that were expected to hold an initial public offering (IPO) including Facebook, Groupon, and others, they took advantage of investor interest in pre-IPO shares that are virtually impossible for company outsiders to obtain.

According to the SEC’s complaint, the purported escrow accounts at Arnold’s firm — First American Service Transmittals Inc. (FAST) — played a critical role in the fraudulent scheme. Mattera and Van Siclen told investors verbally and in writing that their investments would be held in escrow with FAST. Arnold, who was charged together with Mattera in a previous SEC enforcement action, falsely held out FAST as an escrow agent for the investments.

Almost immediately after receiving investors’ deposits, however, Arnold released the money to himself and entities controlled by Mattera, who misappropriated investors’ funds for private jets, luxury cars, fine art, jewelry, and other personal uses. He also transferred money to his mother Ann Mattera and his wife Lan Phan.

The U.S. Attorney’s Office for the Southern District of New York, which conducted a parallel investigation of the matter, also filed criminal charges against Mattera followed by an arrest.

The SEC is seeking an emergency court order to freeze the assets of Mattera, Arnold, Joseph Almazon of Hicksville, N.Y., David E. Howard II of New York City, Bradford Van Siclen of Montclair, N.J., and eight different entities also charged in the SEC’s complaint.

The SEC alleges that Mattera, who has been a subject of a prior SEC enforcement action and several state criminal actions, used investor proceeds to compensate Van Siclen and others for their involvement in promoting the fraudulent offerings. Howard, who was separately charged by the SEC earlier this year for his role in a boiler room operation, worked for Mattera as an authorized representative of the Praetorian hedge fund.

Almazon controls Long Island-based unregistered broker-dealer Spartan Capital Partners, which raised a significant portion of the money in the Praetorian entities.

The SEC’s complaint alleges that Spartan Capital solicited investments by phone, word of mouth, and advertisements on professional networking website 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.”

The SEC seeks a temporary restraining order as well as preliminary and permanent injunctive relief and financial penalties against the defendants, as well as disgorgement by defendants and relief defendants of their ill-gotten gains plus prejudgment interest.

The U.S. Attorney’s Office for the Southern District of New York, Internal Revenue Service, and Swiss Financial Market Supervisory Authority assisted in the investigation.


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