It's not everyday that a professor at the prestigious Business School of Columbia University finds himself named in a criminal Complaint; however, just such a day dawned on October 31, 2014, when Gregory Rorke, then 60 years old, was arrested and charged in the United States District Court for the Southern District of New York. A criminal Complaint alleged one count each of wire and securities fraud as part of a scheme that started around December 2009, when Rorke, a former adjunct professor at Columbia Business School had fraudulently solicited about $3 million from over 30 investors to purchase convertible debt offerings of Navagate, Inc., a company that he had founded and was the principal owner and Chief Executive Officer.
The Personal Guarantee
In furtherance of his scheme, Rorke provided to investors a personal guarantee buttressed by a financial statement asserting that he personally had at least $12 million in assets consisting of at least $1 million in cash, $5 million ir readily marketable securities, and a home valued at no less than $1 million. About a year after filing the Complaint, federal prosecutors filed an Information, which, in part, asserted that:
6. While GREGORY RORKE, the defendant, certified that all of the pledged assets belonged to him, the majority of the assets were actually held solely in the name of his wife, who never authorized RORKE to pledge them.
. . .8. Moreover, GREGORY RORKE, the defendant, falsified documents which purported to represent that he owned the assets pledged in support of the personal guarantee, including by creating and emailing a doctored version of a statement from his wife's U.S. Trust Account, to make it appear that the account was in RORKE's name.
So, waddawe learn here? For starters, personal guarantees are nice. Documentation that you've got the bucks to back up your personal guarantee is even better. Unfortunately, when the personal guarantee is wishful thinking and the supporting financial statements are composed of blue sky and the air that we breathe, there's not so much "nice" and "better" involved but, in their place, a major dose of criminal fraud.
Taxes Paid and Escrow Opened
Following the receipt of investor funds into an escrow account, Rorke submitted a notarized affidavit attesting to his payment of Navagate's tax liabilities to the Internal Revenue Service, which paved the way for the release of funds from escrow. Unfortunately for investors, the Information asserts that:
9. GREGORY RORKE, the defendant, also misrepresented that amount of Navagate's tax liabilities and claimed that he made payments to the IRS when he had not. For example, in October 2010, in an effort to fraudulently access investor funds held in an escrow account controlled by Middlebury, RORKE signed a notarized affidavit indicating that he had sent a check to the IRS for $350,000, in purported satisfaction of outstanding tax liabilities, when in fact no such payment had been made and the tax liabilities actually were increasing. Following RORKE's execution of the affidavit, monies held in ecrow were released to RORKE.
Faced with threats from investors demanding repayment of their investments, by November 28, 2012, Rorke emailed a purported statement from an alleged Hong Kong Shanghai Bank Corporation (*HSBC") representative that fraudulently asserted that HSBC had entered into a multi-million dollar contract with Navagate, which was a total fabrication. In all likelihood, Rorke was attempting to buy time and delay -- but, at best, it was an effort to delay the inevitable. Within two years of having floated the story about HSBC's contract, federal prosecutors were knocking on Rorke's door and he would be placed under arrest and charged.
If convicted, Rorke faced a maximum fine of $5 million or twice the gross gain/loss per offense and a maximum sentence of 20 years in prison on each of the two criminal counts.
On May 7, 2015, Rorke pled guilt to one count each of securities and wire fraud.
On May 13, 2016, Rorke was sentenced to two years in prison and three years of supervised release.
Bill Singer's Comment
Thirty -- count 'em -- thirty duped investors to the tune of $3 million. A likely smart fellow in the form of an Ivy League B-school professor gets himself caught up in securities fraud during the dark days of the Great Recession.
An undergraduate degree from Brown and an M.B.A. from Harvard -- truly impressive. On top of that, he is the self-proclaimed teacher of a Columbia Business School MBA course on "Turnarounds and Restructuring," which he asserted was one of the school's most popular and highly rated courses. No wonder Rorke was able to attract 30 investors with such a resume.
For an interesting aspect of the fraud, consider the "Judgment" entered on behalf of defrauded investors in their civil lawsuit. Murat Aktar et al., Plaintiffs, v. Navagate, Inc. and Gregory Rorke a/k/a Greg Rorke, Defendants (Judgment, Supreme Court of the the State of New York, County of New York, 652425/2013, April 7, 2014). Among the Plaintiffs is celebrity chef Thomas Colicchio -- and could that be former Bear Stearns hedge fund manager Ralph Cioffi?
Did Rorke start out as a con artist with the intent to defraud or did he simply get sucked into the vortex of a economic storm from which he could not escape? Frankly, who knows and for those who were Rorke's victims, who really cares about his motives: that's the stuff for Hollywood to deal with when they make the film.
The takeaway here is that you just never know and because you never really know, you must do your due diligence when getting into any investment; even one with an impressive business school professor who is offering you, hand to God, his ironclad personal guarantee replete with seemingly solid financial statements. Yeah, I know, if you can't trust a Columbia University business professor with a personal guarantee and financials to back it up, who can you trust? And that, folks is the point: You can't trust anyone! Sorry for being such a cynic but it's a lifestyle that has served me well.