Chairman And Senior Executive Of Venture Capital Funds Charged In Manhattan Federal Court With Securities Fraud And Wire Fraud

Geoffrey S. Berman, the United States Attorney for the Southern District of New York, and William F. Sweeney Jr., the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced today that DAVID WAGNER and MARC LAWRENCE were arrested this morning on securities fraud and wire fraud charges stemming from their operation of a number of corporate entities (collectively referred to as “Downing”) as a Ponzi-like scheme.  WAGNER and LAWRENCE solicited over $8 million from investors through materially false and misleading statements regarding, among other things, Downing’s financial condition, use of investor proceeds, sources of funding, ability to pay salaries to employee-investors, and investment portfolio.  Then, WAGNER and LAWRENCE misappropriated a significant portion of those funds and used them for, among other things, the payment of management fees, the repayment of prior investors, and personal expenses.   WAGNER was arraigned earlier today in the United States District Court for the District of Rhode Island and LAWRENCE will be presented later today in the United States District Court for the Middle District of Florida.  The case has been assigned to U.S. District Judge Ronnie Abrams.

Manhattan U.S. Attorney Geoffrey S. Berman said:  “As alleged, David Wagner and Marc Lawrence were no more scrupulous than practitioners of three-card Monte or the shell game, but for much higher stakes.  They allegedly offered employee-investors the opportunity to get in on the ground floor of a multimillion-dollar venture capital business, but what the employee-investors really got was fleeced.  Now Wagner and Lawrence are in custody and facing serious criminal charges.”

FBI Assistant Director William F. Sweeney Jr. said:  “Wagner and Lawrence sought money up front from employee investors who believed their principals were acting in good faith.  It turns out, as we allege, they were not.  The ones who stood to lose the most in this scheme knew the least about the risks they were taking.  Illegal investment schemes of any kind will ultimately be faced with intense scrutiny, especially those that aim to capitalize on the losses of others.”

According to the Indictment unsealed today in Manhattan federal court:[1]

From at least in or about December 2013 through at least in or about 2017, WAGNER, the chief executive officer of Downing, and LAWRENCE, the president of several Downing entities, solicited investments in Downing, a purported venture capital firm that would invest in healthcare start-ups referred to as “portfolio companies” and provide sales, operations, and management expertise to the portfolio companies in order to bring their products to market and generate returns for Downing investors, who also worked for Downing (the “employee-investors”).  WAGNER and LAWRENCE, and others acting at their direction, solicited more than approximately $8 million in investments in Downing from employee-investors located across the United States, including in the Southern District of New York, as a requirement of employment with Downing. 

After making the required investment of between $150,000 and $250,000 in Downing and starting their employment at Downing, employee-investors soon learned, among other things, that contrary to representations made by WAGNER and LAWRENCE, and others acting at their direction, Downing did not have access to millions of dollars in funding, often could not make payroll, had virtually no products to sell, and that employee-investors were the overwhelming source of funding.  Employee-investors also learned that WAGNER and LAWRENCE had misrepresented the companies in Downing’s portfolio, their product readiness, and ability to generate revenue.  While the particular formulation of these misrepresentations shifted over time, WAGNER and LAWRENCE systematically sought and obtained employee-investor money through materially false and misleading statements. 

Beginning in or about May 2016, after several employee-investors had brought lawsuits against WAGNER, LAWRENCE, and several Downing entities, alleging claims based on, among other things, fraud, WAGNER and LAWRENCE continued the scheme by recruiting employee-investors into a new company called Cliniflow Technologies, LLC (“Cliniflow”), through materially false and misleading statements about Cliniflow’s cash reserves, portfolio companies, and exposure to litigation.  In fact, Cliniflow purportedly held majority ownership in the same primary portfolio company as other Downing entities and was simply a new name used by WAGNER and LAWRENCE to solicit investments from new employee-investors that was not tainted by the lawsuits filed against Downing entities.  A majority of the over $1.5 million raised by WAGNER and LAWRENCE through Cliniflow was transferred to other Downing entities and used to pay for, among other things, WAGNER’s personal expenses and the repayment of prior investors.

Finally, in or about January 2017, WAGNER obtained a $400,000 loan and $100,000 grant from the Connecticut Department of Economic and Community Development (“CTDECD”) for Cliniflow on the basis of materially false statements made by WAGNER to the CTDECD.  WAGNER transferred a majority of the funds obtained from the State of Connecticut, which were required to be used for Cliniflow’s purported relocation from New York to Connecticut, to other Downing entities and also used a portion of the funds to purchase a luxury car for his daughter.

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WAGNER, 54, of East Greenwich, Rhode Island, and LAWRENCE, 54, of St. Petersburg, Florida, are each charged in five counts – namely, two counts of securities fraud, one count of conspiracy to commit securities fraud, one count of conspiracy to commit wire fraud, and one count of wire fraud.  Conspiracy to commit securities fraud carries a maximum sentence of five years in prison.  Each of other charges carries a maximum sentence of 20 years in prison.  The maximum potential sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencings of the defendants will be determined by the judge.

Mr. Berman praised the work of the FBI, and thanked the United States Securities and Exchange Commission and the Enforcement Section of the Massachusetts Securities Division for their assistance. 

This case is being handled by the Office’s Complex Frauds and Cybercrime Unit.  Assistant U.S. Attorneys Jilan J. Kamal and Sagar K. Ravi 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.