By now, we can probably refer to the Facebook and Groupon offerings as having merely added insult to injury. For some folks who were eager, very eager, to get in on the ground floor of what would prove to be a plummet to the basement, another special investment opportunity proved even more disastrous.
According to federal prosecutors, in 2010 and 2011, John A. Mattera was Chairman of the Advisory Board of the mutual fund Praetorian Global Fund Ltd. ("Praetorian"). During the late summer of 2010, Mattera and others pitched to investors an opportunity to invest in special purpose entities related to Praetorian. In fact, there would be ten of these entities, all impressively labelled with roman numerals - from I to X. When you see roman numerals you know that this is an impressive deal, right? And keep in mind that the fund's name is derived from the elite Praetorian Guard of the Roman Empire. Wow! How can you possibly lose money with all that ancient Roman stuff?
Then there's that whole special purpose entity thing. I want you to mull that over. Special Purpose Entity. Sounds quite impressive, right? Ah ha! Now you understand why Wall Street and some of the denizens of that thoroughfare's darker corners like to use all of those exotic terms. If you fell under Mattera's spell, you got sucked into a spiel about special purpose entities that were somehow related to the Praetorian Global Fund Ltd., and, as these things so often go, this whole deal gets known as G Power Entities.
What you were told about the G Power Entities and what the truth was turned out to be two concepts quite far apart.
It started with the representation that the G Power Entities owned shares in companies - among which were the then much hyped and still private Facebook and Groupon. Now the funny thing about Facebook and Groupon, as you may recall way back in 2010 and 2011, was that everyone wanted in because everyone knew that they were going public and everyone knew that the sky was the limit on the explosion to the upside for the publicly traded shares. Yeah, gotta love that fellow "Everyone."
Of course, there's a lot to be said for name droppin' - for example, the G Power Entities didn't actually own shares in Facebook or Groupon, although, you know, the fast talkin' pitchmen made it pretty clear that the company was long those private securities, something like 1 million shares of each. Details. Mere details.
For some folks, all that they needed to hear was special purpose entities, and that impressive sounding Praetorian name, and Facebook, and Groupon. $13 million dollars later, the G Power Entities investors believed that their funds were in escrow accounts in a Florida bank, which Mattera and his pals confirmed. Further, the escrowed funds were guaranteed to remain sequestered until either the offering was completed or another triggering event took place, at which time the case would be converted to an investor's ownership interest in the particular special purpose entity.
I'm sure that it will come as no surprise to you to learn that the escrow accounts were broken into like a cheap piggy bank and the bulk of funds wound up under Mattera's direct or indirect control. And, duh, about $4 million was diverted to personal items for Mattera and his family, such as expensive jewelry, interior decorating, and luxury cars.
On October 3, 2012, Mattera, 50, pled guilty in federal courty in the Southern District of New York to
Mattera agreed to the entry of a $13 million forfeiture order as part of his plea. 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. Sentencing is scheduled for February 2012.
Nice job by U.S. Attorney Preet Bharara and his staff.