Craig Berkman, ran unsuccessfully for governor in 1994 as a Republican, as a perfect example of the species. When the IPO came up he called all his mates and told them he would use their money to buy pre-IPO shares in Facebook and other companies like LinkedIn, Groupon and Zynga. Instead, he used new investor money to pay off earlier investors and to fund his own expenses, including nearly $6 million to help satisfy a settlement with a firm that accused him of failing to pay his debts.
After all that particular scam has worked for politicans from both sides of the political spectrum for generations. Unfortunately in the business world it is illegal. In June, Berkman pleaded guilty in federal court in New York to securities and wire fraud and agreed to forfeit more than $13 million he raised from more than 120 investors, including longtime friends.
The sentence was less than the 97 months suggested by federal sentencing guidelines but more than the 24 months Berkman's attorney had requested. Berkman, a businessman and the former head of the Oregon Republican Party, will also be required to make restitution of approximately $11 million, according to prosecutors.