Three men who claimed they had special access to Facebook Inc. (FB) shares before its initial public offering last year were charged with defrauding an investor of $6.7 million.
Eliyahu Weinstein, 37, Alex Schleider, 47, and Aaron Muschel, 63, were charged in a complaint unsealed today in federal court in Newark, New Jersey. They offered blocks of Facebook shares in three transactions to a New Zealand investor before the company’s IPO last May, even though they had no access to them, authorities said.
At the time, Weinstein was under indictment on charges that he ran a $200 million real-estate fraud, U.S. Attorney Paul Fishman said today in a statement. In January, Weinstein pleaded guilty to the Ponzi scheme in federal court in Trenton, New Jersey. Facebook, based in Menlo Park, California, is the world’s largest social networking service.
“The defendants took advantage of the buzz around the Facebook IPO to fleece unsuspecting investors,” Fishman said. “Shamelessly, Eliyahu Weinstein allegedly committed these crimes while under federal indictment for another investment scheme, even using stolen money to pay his legal fees.”
The investor lost $3 million on the Facebook deals, $2.83 million on a purported stake in a Miami apartment complex, and $675,000 in another scheme, according to a Federal Bureau of Investigation arrest complaint.
They were charged with wire fraud conspiracy and face as many as 20 years in prison that count. Weinstein was charged with wire fraud conspiracy while on pretrial release, which carries a 30-year maximum penalty. He and Muschel also were charged with transacting in criminal proceeds and face as many as 10 years on that charge.
U.S. Magistrate Judge Madeline C. Arleo revoked Weinstein’s $10 million bail, saying he is accused of crimes while on pretrial release. He is scheduled to be sentenced next month. Prosecutors said he used some of the proceeds of the Facebook fraud to pay his legal fees.
His two lawyers in court, Henry Klingeman and Mark D. Harris, will withdraw “because they believe this is a legal conflict,” Assistant U.S. Attorney Gurbir Grewal told the judge. After the hearing, Klingeman and Harris declined to comment.
Arleo released Schleider and Muschel on $1 million bonds. Schleider’s attorney Andrew Citron declined to comment. Muschel’s attorney James T. Moriarty said, “He’s a perfectly legitimate guy. How he’s involved in this is another story.”
He said “it was known in the community that Weinstein was under indictment.”
Weinstein pleaded guilty on Jan. 3 to a $200 million fraud that authorities said initially targeted fellow members of the Orthodox Jewish community. He spent the proceeds on luxury cars, jewelry and gambling trips, as well as his collection of Judaica, Fishman said at the time.
The FBI complaint refers to three unindicted co-conspirators, including a lawyer who lives in Lakewood and has offices in Seaside Heights, New Jersey, and Los Angeles. Another conspirator was a Lakewood resident, identified as C.R.E., who worked in Weinstein’s home as his personal assistant, according to the FBI.
The third, identified as M.B., was an attorney licensed in in Massachusetts and Florida before pleading guilty in 1997 to conspiracy to possess cocaine with intent to distribute. He was sentenced in 1999 to almost nine years in prison and was released seven years later. He resigned from the Florida bar, yet never told the Massachusetts bar of his conviction or sentence, according to the FBI.
He moved to New Jersey and resumed practicing law, controlling an attorney trust account used in the scheme, according to the FBI.
The attorney is Michael W. Burnbaum, according to a person familiar with the matter who was not authorized to discuss the identity. The federal Bureau of Prisons website shows he is 63 and was released Aug. 25, 2006.
Asked to comment today in a telephone interview, Burnbaum said: “I really don’t know what you mean. That’s all I can tell you. I’m sorry.”
In 2012, Weinstein caused $620,000 to be sent to M.B.’s attorney trust account, and “the vast majority” originated from the victim, identified in court papers as G.C., according to the FBI.
“M.B. caused at least $300,000 to be wired to entities in Israel for real estate investments” on Weinstein’s behalf, according to the bureau.
Weinstein loaned $3.88 million of the proceeds from G.C. to Rabbi C.B. in Brooklyn, who controlled Congregation K, also in Brooklyn, according to the complaint.
“Congregation K owned life insurance policies on a number of different insured individuals worth approximately $350 million upon their deaths,” the FBI said. “Congregation K was the beneficiary on these policies, and paid monthly premiums of over $1 million on them.”
In October 2011, Rabbi C.B. sought a loan from Weinstein to help make the premium payments, according to the complaint.
Despite “repeated assurances” from Weinstein, Schleider and the Lakewood attorney who is a co-conspirator, G.C. has received only about $500,000 in return, according to the FBI.
On Feb. 26, Weinstein caused a $188,000 check to be written on an attorney’s account that was provided to “Rabbi P,” who “interceded on defendant Weinstein’s behalf to broker a settlement” with G.C., according to the FBI. The check bounced.
Eight days earlier, Weinstein met with G.C., his son J.C., and “Dr. A.O.,” who purported to be a wealthy investor backing Weinstein, according to the FBI. J.C. recorded the meeting at the Marriott Hotel in Teaneck, New Jersey. Weinstein assured J.C. that he would get his money back, according to the FBI.
“You’ve got to trust me,” Weinstein said, according to the complaint. “It’s going to be hard for you because I’m the bad guy. I’m the thief.”
The case is U.S. v. Weinstein, 13-mj-08148, U.S. District Court, District of New Jersey (Newark).
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