Three Arrested, Charged in New Jersey in Multi-Million-Dollar Fraud Offering Phony Pre-IPO Facebook Shares
One Conspirator Allegedly Committed Crimes While Federally Indicted in Unrelated Scam
|U.S. Attorney’s Office May 14, 2013|
NEWARK, NJ—Federal law enforcement officers with the FBI and IRS-Criminal Investigation arrested three men at their homes this morning on charges they stole approximately $6.7 million from an investor, in part by claiming special access to shares in the social media company Facebook Inc. prior to the company’s initial public offering, New Jersey U.S. Attorney Paul J. Fishman announced.
One of the men, Eliyahu Weinstein, 37, of Lakewood, New Jersey, faces additional charges for allegedly committing the fraud while under federal indictment in New Jersey for a separate real estate investment scheme.
Weinstein; Alex Schleider, 47, of Lakewood; and Aaron Muschel, 63, of Brooklyn, New York, are expected to appear on the charges this afternoon before U.S. Magistrate Judge Madeline Cox Arleo in Newark federal court.
“According to the charges, the defendants took advantage of the buzz around the Facebook IPO to fleece unsuspecting investors,” said U.S. Attorney Fishman. “Shamelessly, Eliyahu Weinstein allegedly committed these crimes while under federal indictment for another investment scheme, even using stolen money to pay his legal fees. Today’s arrest should put an end to his brazen conduct.”
“Today’s charged conduct is another example of the cautionary tale that if an opportunity seems to be too good to be true, it probably isn’t,” said FBI Special Agent in Charge Aaron T. Ford. “More than ever, the investing public must exercise the appropriate amount of due diligence before investing with new or unknown entities. This is highlighted by the fact that one of today’s charged individuals is currently awaiting sentencing on a previous fraud conviction.”
According to the complaint in this case and other documents filed in court:
In February 2012, Weinstein and his fellow conspirators offered investors the opportunity to purchase large blocks of Facebook shares prior to the company’s IPO in May 2012. The offer was particularly attractive because large blocks of the shares were extremely difficult to get, and they were expected to increase in value at the time of the IPO. Weinstein, Schleider, and Muschel did not actually have access to the shares.
Based on misrepresentations by Weinstein, Schleider, Muschel, and another conspirator, an investor victim—described in the complaint as “G.C.”—wired millions of dollars between February and March 2012 to an account Weinstein and a conspirator controlled. Weinstein and Schleider convinced G.C. to send the money by, among other things, providing the victim with false documents showing companies owned by various conspirators held assets which would secure G.C.’s investment.
The conspirators did not use any of G.C.’s money to purchase Facebook shares, instead misappropriating it for their own use and benefit by moving it through various accounts. Weinstein used some of the money to pay lawyers and experts representing him in his pending criminal case and in pending civil matters. Weinstein, Schleider, and Muschel also used G.C.’s money to make investments in a number of different businesses unrelated to Facebook and to make loans for their own benefit.
Throughout the scheme, Weinstein was under indictment and on pretrial release and was prohibited from engaging in any monetary transaction for more than $1,000 without the approval of court-appointed special counsel. Weinstein pleaded guilty in January 2013 before U.S. District Judge Joel A. Pisano in Trenton, New Jersey, to two counts of that indictment, admitting he ran a real estate investment fraud scheme that caused $200 million in losses and then laundered the proceeds of the scheme.
Weinstein, Schleider, and Muschel are variously charged in the 13-count complaint unsealed today. The charges against each and the maximum potential penalty per count are as follows:
|Count(s)||Charge||Charged Defendant(s)||Maximum Potential Penalty/Count|
|One||wire fraud conspiracy||Weinstein, Schleider, Muschel||20 years in prison; $250,000 fine, or twice the gain or loss from the offense|
|Two through six
||wire fraud while on pretrial release||Weinstein||30 years in prison (10 years consecutive to 20 years for wire fraud); $250,000 fine, or twice the gain or loss from the offense|
|Seven through 13||transacting in criminal proceeds||Weinstein, Muschel||10 years in prison; $250,000 fine, or twice the gain or loss from the offense|
Additionally, the government is seeking the seizure and forfeiture of all funds fraudulently obtained by the defendants, including three pieces of real property allegedly maintained with the proceeds of the scheme.
U.S. Attorney Fishman praised special agents of the FBI, under the direction of Special Agent in Charge Ford in Newark, for their work leading the investigation of this case. He also credited special agents of IRS–Criminal Investigation, under the direction of Special Agent in Charge Shantelle P. Kitchen, for their important contributions.
The government is represented by Counsel to the U.S. Attorney Rachael A. Honig; Assistant U.S. Attorneys Gurbir S. Grewal and Zach Intrater of the U.S. Attorney’s Office Economic Crimes Unit; and Evan S. Weitz of the Office’s Asset Forfeiture and Money Laundering Unit.
The charges and allegations against the defendants are merely accusations, and the defendants are considered innocent unless and until proven guilty.
This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force. The task force was established to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. Attorneys’ Offices, and state and local partners, it is the broadest coalition of law enforcement, investigatory, and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state, and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions, and other organizations. Over the past three fiscal years, the Justice Department has filed nearly 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,900 mortgage fraud defendants. For more information on the task force, please visit www.stopfraud.gov.