The SEC filed an emergency enforcement action against a newly-minted hedge fund that allegedly was targeting investors seeking shares of in Internet and technology companies like Facebook and Groupon in advance of a public offering.  A parallel investigation was being conducted by the U.S. Attorney’s Office for the Southern District of New York. Florida resident John Mattera and several other individuals allegedly carried out the scam by promoting The Praetorian Global Fund, which they falsely claimed owned or had affiliates that owned, access to millions of dollars worth of shares in privately-held companies expected go to public - Facebook, Groupon and others.  Investors were assured that their funds were securely held in an escrow service. In reality, according to the SEC’s complaint filed in federal court in Manhattan, Mattera and his friends never owned the promised pre-IPO shares, and the purported escrow service, headed by John Arnold of Florida, consisted of personal accounts controlled by Mattera and Arnold.  Arnold took his cut, leaving the remainder for Mattera to use on personal expenditures for himself and others. Players in the Scheme. The SEC is seeking an emergency court order to freeze the assets:  (i) Mattera;  (ii) Arnold;  (iii) Joseph Almazon;  (iv) David Howard II;  (v) Bradford Van Siclen;  and, (vi) 8 different entities.  All the individuals, except Arnold, are from the New York metro area.  Mattera has been a subject of a prior SEC enforcement action and several state criminal actions. SEC Says Broker-Dealers Also Involved. The SEC said that Mattera 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. Mattera, Van Siclen, and Howard actively solicited broker-dealer representatives and provided them with false documents and information, to get them to pitch the Praetorian entities for their clients to invest in.  All told, they raised at least $12 million from investors across the country over the past 15 months. Joseph Almazon, who controls unregistered B/D Spartan Capital Partners, raised a significant portion of that money.  It's alleged that Spartan Capital solicited investments by phone, word of mouth, and advertisements on LinkedIn.  Sample ads 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.”

“We have access to Fisker Auto, Groupon, Ren Ren, Bloom Energy and many more! Unlike most of the other investment banking firms, we let you sell your shares right at the open! You also do not need to be in NY to invest in our IPOs!”

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. SEC Staff Credits. The SEC investigation, which continues, has been conducted by:  Karen Willenken, Michael Osnato, Richard Needham, Yvette Quinteros (NYRO).  Litigation will be led by Preethi Krishnamurthy. For further details, go to:   [SEC PR 11-245, 11/17/11]