Former Ernst & Young 'Entrepreneur of the Year' Didn't Live Up to Others' Expectations.

[ by Howard Haykin ]

A prominent Miami-based entrepreneur was charged with defrauding investors by grossly exaggerating the financial success of his company that purportedly produced housing materials to withstand fires and hurricanes.  Nearly half of the money raised from investors was misappropriated to maintain the (faux?) entrepreneur's "lifestyle of the rich and famous"  - like mortgage on his multi-million dollar mansion and lavish highlife expenses.

Profile of Defendants. Claudio Osorip, 54, is a resident of Aventura, FL.  He was a managing member of InnoVida from 2006 until 2011, and InnoVida's president, CEO, and a member of the Company's Board of Directors.  Craig Toll, 64, the Company's CFO, is a resident of Pembroke Pines, FL.  He's been a licensed CPA since 1980, and had been the company's CFO since December 2007.

SEC Findings and Allegations. Osorio allegedly raised nearly $17 million from investors by portraying InnoVida Holdings LLC as having millions of dollars more in cash and equity than it actually did. Osorio sometimes solicited investors one-on-one at political fundraising events.  To add an air of legitimacy to his company, Osorio assembled a high-profile board of directors that included a former governor of Florida, a lobbyist, and a major real estate developer. vOsorio falsely told a potential investor he had invested tens of millions of his own money as InnoVida's largest stakeholder, and he hyped a Middle Eastern sovereign wealth fund investment as a ruse to solicit additional funds from investors.  CFO Craig Toll helped Osorio create the false financial picture of InnoVida.

It's alleged that, besides his Miami Beach mansion, Osorio illegally used investor money to pay for his Maserati, a Colorado mountain retreat home, and country club dues - those expenditures would add up to at least $8 million.  In a parallel action, the U.S. Attorney's Office for the Southern District of Florida today announced criminal charges against Osorio and Toll.

The scheme allegedly began in 2007 and run until 2010.  InnoVida purportedly was in the business of manufacturing building panels used to construct houses and other structures resistant to fires and hurricanes.  The company entered bankruptcy in 2011.  To induce investors, Osorio and Toll allegedly produced false pro forma financial statements.  The pro forma statement for 3/31/09 stated that a pro forma financial statement for 3/31/09 stated that InnoVida had more than $35 million in cash and cash equivalents and more than $100 million of equity.  A pro forma financial statement for 12/31/09 listed more than $39 million in cash and cash equivalents and $122 million of equity.

Knowingly or not, failed to review all of InnoVida's bank account statements when Toll drafted financial statements. Instead, he accepted Osorio's misrepresentations that InnoVida had these assets in an account to which Toll did not have access.

The SEC further alleges that Osorio offered bogus share prices ... to prospective investors based on false valuations.  He told one investor that InnoVida was valued at $250 million, and then a week later told a different investor that the company was worth $50 million.  The latter investor purchased $100,000 of Osorio's stake in the company for 5¢ per share.

The SEC's complaint seeks disgorgement of ill-gotten gains, financial penalties, and injunctive relief against InnoVida, Osorio, and Toll to enjoin them from future violations of the federal securities laws. The complaint also seeks an order barring Osorio and Toll from serving as an officer or director of a public company.

SEC Staff Credits. Investigation in Miami Regional Office by Senior Investigations Counsel Gary Miller, Accountant Karaz Zaki;  supervised by  Assistant Regional Director Elisha Frank. Amie Riggle Berlin will lead the SEC's litigation.

For further details, go to:   [ SEC PR 12-258m 12/7/12 ]       [ SEC Complaint ].