Guilty Plea In $13m Phony Facebook and Groupon Stock Scheme

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that JOHN A. MATTERA pled guilty in Manhattan federal court to charges of securities fraud, wire fraud, and conspiracy to commit securities fraud and wire fraud in connection with a $13m scheme to defraud investors through false ownership claims of stock in Facebook and Groupon before their initial public offerings, and in other private companies. In connection with his guilty plea, MATTERA agreed to pay restitution to the victims of his offense and consented to the entry of a $13m forfeiture order.

Manhattan U.S. Attorney Preet Bharara stated: “With false promises of profitable investments in high-profile stock, John Mattera lured unsuspecting investors into a meticulously orchestrated, multi-million dollar fraud scheme, and used their money to fund his lavish lifestyle. With today’s guilty plea, we begin the process of holding him to account for his crimes.”

According to the charging instruments in this case and statements made in open court today at the plea proceeding:

In 2010 and 2011, MATTERA served as Chairman of the Advisory Board of Praetorian Global Fund Ltd. (“Praetorian”), a professional mutual fund, where he was responsible for the day-to-day management decisions. Beginning in the late summer of 2010, MATTERA and others offered investors the opportunity to invest in special purpose entities related to Praetorian (the “G Power Entities”). MATTERA falsely represented that the G Power Entities owned shares in companies such as Facebook and Groupon when they were still private. Ownership of stock in these private companies was particularly attractive to certain investors because, as MATTERA and others communicated, there was an expectation that initial public offerings would soon occur, thereby potentially increasing the value of the shares. In reality, neither MATTERA, Praetorian, nor the G Power Entities held these shares of stock.

Based on the misrepresentations of MATTERA and others, investors sent more than $11 million into “escrow accounts” maintained at a Florida bank. MATTERA reassured investors that their money would be held in the escrow accounts until either the offering was completed or another triggering event took place. Investors were told they would then receive their ownership interest in the particular special purpose entity. However, instead of maintaining the investor money in the escrow accounts as MATTERA promised, MATTERA caused the vast majority of the funds to be transferred to other entities with which he was associated. Ultimately, MATTERA misappropriated approximately $13 million of investor money, spending nearly $4 million on personal items for himself and his family, such as expensive jewelry, interior decorating, and luxury cars.

MATTERA, 50, pled guilty to one count of securities fraud, one count of wire fraud, and one count of conspiracy to commit securities fraud and wire fraud. He faces a maximum sentence of 20 years in prison on each of the two substantive counts, and a maximum sentence of five years in prison on the conspiracy charge. The defendant also faces a fine of the greater of $5 million or twice the gross gain or gross loss from the offense on the securities fraud charge, as well as fines of lesser amounts on the remaining charges.

MATTERA will be sentenced before United States District Court Judge Richard J. Sullivan on February 1, 2013.