Former Principals Of Private “Pre-IPO” Funds Charged In Connection With $185 Million Fraud Scheme

Press Release Former Principals Of Private “Pre-IPO” Funds Charged In Connection With $185 Million Fraud Scheme Friday, June 7, 2024 Share FacebookLinks to other government and non-government sites will typically appear with the “external link” icon to indicate that you are leaving the Department of Justice website when you click the link. XLinks to other government and non-government sites will typically appear with the “external link” icon to indicate that you are leaving the Department of Justice website when you click the link. LinkedInLinks to other government and non-government sites will typically appear with the “external link” icon to indicate that you are leaving the Department of Justice website when you click the link. Email For Immediate Release U.S. Attorney's Office, Southern District of New York Mario Gogliormella, Steven Lacaj, and Karim Ibrahim are Alleged to Have Defrauded Investors in Legend Venture Partners and Its Related Funds by Selling Shares in Non-Public Companies at Arbitrarily Inflated Prices and Pocketing Hidden Markups Damian Williams, the United States Attorney for the Southern District of New York, and Daniel B. Brubaker, the Inspector in Charge of the New York Office of the U.S. Postal Inspection Service (“USPIS”), announced today the unsealing of an Indictment charging MARIO GOGLIORMELLA, STEVEN LACAJ, and KARIM IBRAHIM, a/k/a “Chris Hayes,” with conspiracy, securities fraud, wire fraud, and investment adviser fraud in connection with their management of L & G Capital Corp., Legend Venture Partners LLC, and a related series of funds. The defendants’ fraudulent misrepresentations about the operation of their funds allowed them to raise approximately $185 million from hundreds of investors. Based in large part on the excessive and undisclosed share price markups they charged to investors, the defendants were able to divert nearly $28 million in investor funds to themselves. They also used investor funds to pay their sales representatives at least $17.5 million in fees and commissions, despite making explicit representations to investors that fees were not being charged. GOGLIORMELLA, LACAJ, and IBRAHIM were arrested earlier today and will be presented this afternoon in Manhattan federal court. The case has been assigned to U.S. District Judge Vernon S. Broderick. U.S. Attorney Damian Williams said: “By allegedly raising approximately $185 million from over 1,400 investors, Mario Gogliormella, Steven Lacaj, and Karim Ibrahim left a trail of shattered trust and financial ruin. Today’s Indictment is a resolute stance against such alleged egregious breaches of investor confidence in the pre-IPO markets. We will hold perpetrators accountable and safeguard investors from such deceitful practices.” USPIS Inspector in Charge Daniel B. Brubaker said: “The U.S. Postal Inspection Service thoroughly investigates investment fraud cases which involve the criminal use of the mail to defraud investors. This case highlights the crooked path these greedy individuals allegedly took as they charged excessive and undisclosed share price markups, callously defrauding investors out of millions. I commend the work of our Postal Inspectors, the Securities and Exchange Commission, and the Assistant U.S. Attorneys for the Southern District of New York’s Securities and Commodities Fraud Task Force. Together we are ensuring that investors are protected, the sanctity of the U.S. Mail is preserved, and ultimately fraudsters are held accountable for their dirty deeds.” According to the allegations in the Indictment:[1] From at least in or about 2019 through at least in or about October 2022, GOGLIORMELLA, LACAJ, and IBRAHIM engaged in a scheme to defraud investors in a group of related private funds known generally as the “StraightPath Funds” and the “Legend Funds” (the “Funds”). In particular, the defendants, and others working at their direction, used “boiler room”-style call centers to market the funds, including to individual, non-professional investors, and present an opportunity to invest in privately held companies expected to go public in the near future (“pre-IPO companies”). The defendants purported to offer investors the chance to acquire shares in pre-IPO companies at favorable prices in advance of an anticipated public offering, at which time they claimed the shares would be worth significantly more. Although the defendants and their agents represented to existing and prospective investors in the Funds that they earned no upfront fees or commission in connection with the acquisition of pre-IPO shares on the Funds’ behalf, in reality and contrary to their fiduciary duties, the defendants acquired the shares and then sold them to the Funds at arbitrarily inflated and excessive prices without disclosing to investors the nature or extent of the markup. The defendants also misled investors regarding the nature of their investments and hid the involvement of GOGLIORMELLA and IBRAHIM, who had previously been disciplined by the Financial Industry Regulatory Authority (“FINRA”) for the management of the Funds. Moreover, in order to evade detection of their scheme, the defendants destroyed records and otherwise obstructed the efforts of the U.S. Securities and Exchange Commission (“SEC”) to uncover the defendants’ fraud on investors. GOGLIORMELLA, LACAJ, and IBRAHIM conducted this scheme through several related entities. Among those entities was L & G Capital Corp. (“L & G”), which, from approximately 2019 up to approximately February 2022, marketed the StraightPath Funds on behalf of StraightPath Venture Partners, Inc. (“SPVP”). In approximately 2021, multiple individuals associated with SPVP received subpoenas from the SEC in connection with an investigation into SPVP’s unlawful marketing of pre-IPO shares to investors, and in approximately February 2022, SPVP ceased operations. On or about May 13, 2022, the SEC filed a civil action against SPVP and its founders. In approximately February 2022, when SPVP ceased operations, GOGLIORMELLA, LACAJ, and IBRAHIM began conducting the scheme under the corporate entity Legend Venture Partners, LLC (“Legend”). The defendants, now through the corporate entity Legend, continued to market funds investing in pre-IPO shares to investors. In addition to marketing these funds, Legend was the manager and investment adviser to each of the five Legend Funds. In order to generate interest in the Funds among retail investors, GOGLIORMELLA, LACAJ, and IBRAHIM used finders, or “referral agents,” to pitch prospective investors and thereafter to serve as the investors’ primary point of contact. The defendants used “boiler room”-style call centers wherein salespeople cold-called potential investors, many of whom were not experienced investors, and gave aggressive sales pitches using notes and pitch scripts. The defendants referred to their pitch scripts as “The Bible.” Contrary to the defendants’ claim that they and their agents did not make money unless and until investors received a profit on their investments, L & G and Legend paid referral agents a commission, typically a 10 to 15% front-end fee based on the amount of the investment that agents were able to draw to the Funds, plus a portion of the carried interest when the Funds exited their position in a particular company. In addition to misleading prospective investors about the compensation paid to referral agents, GOGLIORMELLA, LACAJ, and IBRAHIM defrauded investors in the Funds, for which they acted as fiduciaries, by charging investors excessive and undisclosed markups on share prices of pre-IPO companies, which benefited the defendants and their associates at the expense of investors and the Funds. These markups regularly exceeded 50% of the price at which Legend had acquired the shares and sometimes were as high as 150%. These markups, in turn, were used to pay fees and commissions to the defendants and their sales representatives. GOGLIORMELLA, LACAJ, and IBRAHIM also misled investors by actively taking steps to prevent investors from learning about GOGLIORMELLA’s and IBRAHIM’s leadership roles at Legend because of the fact that both had been disciplined by FINRA. In addition, GOGLIORMELLA, LACAJ, and IBRAHIM misled investors by misrepresenting the experience and knowledge of the sales representatives who were advising investors to invest in their funds. In total, during the course of their scheme, from in or about 2019 through in or about October 2022, GOGLIROMELLA, LACAJ, IBRAHIM, and their agents solicited investments into the Funds of approximately $185 million from at least 1,400 investors. GOGLIROMELLA, LACAJ, and IBRAHIM used much of these investor funds to enrich themselves and their associates and referral agents. GOGLIORMELLA, LACAJ, and IBRAHIM themselves received a total of more than $28 million in investors’ funds. For the most part, these distributions were not disclosed to investors or made in accordance with the Funds’ offering documents. The defendants also paid at least $17.5 million in investor funds to their associates and referral agents, despite having made and caused to be made explicit representations to investors that fees were not being charged or were being waived. In all, approximately 25% of the capital contributions the Funds received from investors was diverted to pay the defendants and their associates. The Funds are no longer operational and are under the control of court-appointed receivers tasked with taking possession of the funds’ assets and recommending a plan to return value to investors. * * * GOGLIORMELLA, 47, of Manhasset, New York, LACAJ, 27, of New York, New York, and IBRAHIM, 34, of Queens, New York, are each charged with one count of conspiracy to commit securities fraud, wire fraud, and investment adviser fraud, which carries a maximum potential sentence of five years in prison; one count of securities fraud, which carries a maximum potential sentence of 20 years in prison; one count of wire fraud, which carries a maximum potential sentence of 20 years in prison; and one count of investment advisor fraud, which carries a maximum potential sentence of five years in prison. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by a judge. Mr. Williams praised the outstanding work of the USPIS. Mr. Williams further thanked the SEC, which has separately filed civil charges against GOGLIORMELLA, LACAJ, and IBRAHIM. This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Adam S. Hobson and Matthew R. Shahabian are in charge of the prosecution. The charges contained in the Indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty. [1] As the introductory phrase signifies, the entirety of the text of the Indictment and the description of the Indictment set forth in this release constitute only allegations, and every fact described should be treated as an allegation. Contact Nicholas Biase, Lauren Scarff, Shelby Wratchford (212) 637-2600 Updated June 7, 2024 Attachment U.S. v. Gorgliormella et al Indictment.pdf [PDF, 5 MB] Topic Financial Fraud Component USAO - New York, Southern Press Release Number: 24-203

Press Release Former Principals Of Private “Pre-IPO” Funds Charged In Connection With $185 Million Fraud Scheme Friday, June 7, 2024 Share FacebookLinks to other government and non-government sites will typically appear with the “external link” icon to indicate that you are leaving the Department of Justice website when you click the link. XLinks to other government and non-government sites will typically appear with the “external link” icon to indicate that you are leaving the Department of Justice website when you click the link. LinkedInLinks to other government and non-government sites will typically appear with the “external link” icon to indicate that you are leaving the Department of Justice website when you click the link. Email For Immediate Release U.S. Attorney's Office, Southern District of New York Mario Gogliormella, Steven Lacaj, and Karim Ibrahim are Alleged to Have Defrauded Investors in Legend Venture Partners and Its Related Funds by Selling Shares in Non-Public Companies at Arbitrarily Inflated Prices and Pocketing Hidden Markups Damian Williams, the United States Attorney for the Southern District of New York, and Daniel B. Brubaker, the Inspector in Charge of the New York Office of the U.S. Postal Inspection Service (“USPIS”), announced today the unsealing of an Indictment charging MARIO GOGLIORMELLA, STEVEN LACAJ, and KARIM IBRAHIM, a/k/a “Chris Hayes,” with conspiracy, securities fraud, wire fraud, and investment adviser fraud in connection with their management of L & G Capital Corp., Legend Venture Partners LLC, and a related series of funds. The defendants’ fraudulent misrepresentations about the operation of their funds allowed them to raise approximately $185 million from hundreds of investors. Based in large part on the excessive and undisclosed share price markups they charged to investors, the defendants were able to divert nearly $28 million in investor funds to themselves. They also used investor funds to pay their sales representatives at least $17.5 million in fees and commissions, despite making explicit representations to investors that fees were not being charged. GOGLIORMELLA, LACAJ, and IBRAHIM were arrested earlier today and will be presented this afternoon in Manhattan federal court. The case has been assigned to U.S. District Judge Vernon S. Broderick. U.S. Attorney Damian Williams said: “By allegedly raising approximately $185 million from over 1,400 investors, Mario Gogliormella, Steven Lacaj, and Karim Ibrahim left a trail of shattered trust and financial ruin. Today’s Indictment is a resolute stance against such alleged egregious breaches of investor confidence in the pre-IPO markets. We will hold perpetrators accountable and safeguard investors from such deceitful practices.” USPIS Inspector in Charge Daniel B. Brubaker said: “The U.S. Postal Inspection Service thoroughly investigates investment fraud cases which involve the criminal use of the mail to defraud investors. This case highlights the crooked path these greedy individuals allegedly took as they charged excessive and undisclosed share price markups, callously defrauding investors out of millions. I commend the work of our Postal Inspectors, the Securities and Exchange Commission, and the Assistant U.S. Attorneys for the Southern District of New York’s Securities and Commodities Fraud Task Force. Together we are ensuring that investors are protected, the sanctity of the U.S. Mail is preserved, and ultimately fraudsters are held accountable for their dirty deeds.” According to the allegations in the Indictment:[1] From at least in or about 2019 through at least in or about October 2022, GOGLIORMELLA, LACAJ, and IBRAHIM engaged in a scheme to defraud investors in a group of related private funds known generally as the “StraightPath Funds” and the “Legend Funds” (the “Funds”). In particular, the defendants, and others working at their direction, used “boiler room”-style call centers to market the funds, including to individual, non-professional investors, and present an opportunity to invest in privately held companies expected to go public in the near future (“pre-IPO companies”). The defendants purported to offer investors the chance to acquire shares in pre-IPO companies at favorable prices in advance of an anticipated public offering, at which time they claimed the shares would be worth significantly more. Although the defendants and their agents represented to existing and prospective investors in the Funds that they earned no upfront fees or commission in connection with the acquisition of pre-IPO shares on the Funds’ behalf, in reality and contrary to their fiduciary duties, the defendants acquired the shares and then sold them to the Funds at arbitrarily inflated and excessive prices without disclosing to investors the nature or extent of the markup. The defendants also misled investors regarding the nature of their investments and hid the involvement of GOGLIORMELLA and IBRAHIM, who had previously been disciplined by the Financial Industry Regulatory Authority (“FINRA”) for the management of the Funds. Moreover, in order to evade detection of their scheme, the defendants destroyed records and otherwise obstructed the efforts of the U.S. Securities and Exchange Commission (“SEC”) to uncover the defendants’ fraud on investors. GOGLIORMELLA, LACAJ, and IBRAHIM conducted this scheme through several related entities. Among those entities was L & G Capital Corp. (“L & G”), which, from approximately 2019 up to approximately February 2022, marketed the StraightPath Funds on behalf of StraightPath Venture Partners, Inc. (“SPVP”). In approximately 2021, multiple individuals associated with SPVP received subpoenas from the SEC in connection with an investigation into SPVP’s unlawful marketing of pre-IPO shares to investors, and in approximately February 2022, SPVP ceased operations. On or about May 13, 2022, the SEC filed a civil action against SPVP and its founders. In approximately February 2022, when SPVP ceased operations, GOGLIORMELLA, LACAJ, and IBRAHIM began conducting the scheme under the corporate entity Legend Venture Partners, LLC (“Legend”). The defendants, now through the corporate entity Legend, continued to market funds investing in pre-IPO shares to investors. In addition to marketing these funds, Legend was the manager and investment adviser to each of the five Legend Funds. In order to generate interest in the Funds among retail investors, GOGLIORMELLA, LACAJ, and IBRAHIM used finders, or “referral agents,” to pitch prospective investors and thereafter to serve as the investors’ primary point of contact. The defendants used “boiler room”-style call centers wherein salespeople cold-called potential investors, many of whom were not experienced investors, and gave aggressive sales pitches using notes and pitch scripts. The defendants referred to their pitch scripts as “The Bible.” Contrary to the defendants’ claim that they and their agents did not make money unless and until investors received a profit on their investments, L & G and Legend paid referral agents a commission, typically a 10 to 15% front-end fee based on the amount of the investment that agents were able to draw to the Funds, plus a portion of the carried interest when the Funds exited their position in a particular company. In addition to misleading prospective investors about the compensation paid to referral agents, GOGLIORMELLA, LACAJ, and IBRAHIM defrauded investors in the Funds, for which they acted as fiduciaries, by charging investors excessive and undisclosed markups on share prices of pre-IPO companies, which benefited the defendants and their associates at the expense of investors and the Funds. These markups regularly exceeded 50% of the price at which Legend had acquired the shares and sometimes were as high as 150%. These markups, in turn, were used to pay fees and commissions to the defendants and their sales representatives. GOGLIORMELLA, LACAJ, and IBRAHIM also misled investors by actively taking steps to prevent investors from learning about GOGLIORMELLA’s and IBRAHIM’s leadership roles at Legend because of the fact that both had been disciplined by FINRA. In addition, GOGLIORMELLA, LACAJ, and IBRAHIM misled investors by misrepresenting the experience and knowledge of the sales representatives who were advising investors to invest in their funds. In total, during the course of their scheme, from in or about 2019 through in or about October 2022, GOGLIROMELLA, LACAJ, IBRAHIM, and their agents solicited investments into the Funds of approximately $185 million from at least 1,400 investors. GOGLIROMELLA, LACAJ, and IBRAHIM used much of these investor funds to enrich themselves and their associates and referral agents. GOGLIORMELLA, LACAJ, and IBRAHIM themselves received a total of more than $28 million in investors’ funds. For the most part, these distributions were not disclosed to investors or made in accordance with the Funds’ offering documents. The defendants also paid at least $17.5 million in investor funds to their associates and referral agents, despite having made and caused to be made explicit representations to investors that fees were not being charged or were being waived. In all, approximately 25% of the capital contributions the Funds received from investors was diverted to pay the defendants and their associates. The Funds are no longer operational and are under the control of court-appointed receivers tasked with taking possession of the funds’ assets and recommending a plan to return value to investors. * * * GOGLIORMELLA, 47, of Manhasset, New York, LACAJ, 27, of New York, New York, and IBRAHIM, 34, of Queens, New York, are each charged with one count of conspiracy to commit securities fraud, wire fraud, and investment adviser fraud, which carries a maximum potential sentence of five years in prison; one count of securities fraud, which carries a maximum potential sentence of 20 years in prison; one count of wire fraud, which carries a maximum potential sentence of 20 years in prison; and one count of investment advisor fraud, which carries a maximum potential sentence of five years in prison. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by a judge. Mr. Williams praised the outstanding work of the USPIS. Mr. Williams further thanked the SEC, which has separately filed civil charges against GOGLIORMELLA, LACAJ, and IBRAHIM. This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Adam S. Hobson and Matthew R. Shahabian are in charge of the prosecution. The charges contained in the Indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty. [1] As the introductory phrase signifies, the entirety of the text of the Indictment and the description of the Indictment set forth in this release constitute only allegations, and every fact described should be treated as an allegation. Contact Nicholas Biase, Lauren Scarff, Shelby Wratchford (212) 637-2600 Updated June 7, 2024 Attachment U.S. v. Gorgliormella et al Indictment.pdf [PDF, 5 MB] Topic Financial Fraud Component USAO - New York, Southern Press Release Number: 24-203