Managing Director of Venture Capital Firm Arrested and Charged in Manhattan Federal Court in Connection with Multi-Million-Dollar Ponzi Scheme
Preet Bharara, the United States Attorney for the Southern District of New York, Diego Rodriguez, the Assistant Director in Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), and Andrew Vale, the Special Agent in Charge of the Albany Division of the FBI, announced today that GREGORY W. GRAY, JR., was arrested yesterday in Florida on securities fraud, wire fraud, and perjury charges stemming from his scheme to defraud investors in multiple funds created and controlled by GRAY of approximately $5 million dollars.
Among other illicit activity, GRAY allegedly fraudulently induced an investor (“Investor-1”) to invest $5 million in a fund controlled by GRAY, based on the false representation that GRAY would invest that money, through the fund, in shares of Uber Technologies, Inc. (“Uber”). In fact, GRAY allegedly did not invest any of Investor-1’s $5 million in Uber, instead using that $5 million investment to repay investors who believed they had invested in shares of Twitter, Inc. (“Twitter”), including Investor-1 himself, who also believed he had invested in Twitter. In support of the scheme, GRAY allegedly forged a stock transfer agreement, which he provided to Investor-1, purporting to show that GRAY, through a fund he controlled, had used the $5 million investment to purchase over 175,000 shares of Uber. In fact, and as GRAY well knew, he had purchased no Uber shares whatsoever.
GRAY was presented today before a United States Magistrate Judge in federal court in West Palm Beach, Florida.
U.S. Attorney Preet Bharara said: “As alleged, Gregory Gray dangled the opportunity to invest in new companies like Twitter and Uber to entice his victims into fraudulent investment schemes and, in an effort to extricate himself from one scam, he devised another. Then, as the Complaint charges, he made things worse by lying about it to the SEC. The investments Gray allegedly offered were fake but the charges he faces are real.”
FBI Assistant Director in Charge Diego Rodriguez said: “With the cachet of Uber and Twitter, Gray allegedly convinced investors to join his fund. Instead of making real investments, he allegedly used the money to pay off old debts. Mr. Ponzi may be dead, but the illicit behavior for which he is known is alive and well. We will continue policing our markets to protect their integrity and investors.”
FBI Special Agent in Charge Andrew Vale said: “Yesterday’s arrest is the result of the hard work and cooperation between the FBI, SEC and the U.S. Attorney’s Office to bring this individual to justice. This multimillion-dollar fraud scheme demonstrates the significant impact white collar criminals can have on the hard-working individuals of our communities, and the FBI, in concert with our federal partners, will continue the dedicated pursuit of those who violate the law for personal gain.”
According to the three-count Complaint unsealed yesterday in Manhattan federal court:
From at least April 2014 through February 2015, GRAY engaged in a Ponzi scheme to defraud investors who believed they had invested in funds GRAY controlled at Archipel Capital, LLC (“Archipel”), where GRAY was the Senior Managing Director.
From June 2012 through November 2013, GRAY raised over $5.2 million, from approximately 52 investors, for four Archipel “Social Media Funds.” GRAY promised to use that capital to purchase shares of Twitter before the company’s initial public offering (“IPO”). Based on GRAY’s representations to investors, GRAY promised to purchase over 200,000 pre-IPO Twitter shares.
GRAY frequently commingled funds of the various Archipel investment vehicles that he managed. Ultimately, GRAY’s withdrawals from the Social Media Funds left those funds with insufficient money to purchase the full complement of pre-IPO Twitter shares he had promised investors.
On November 6, 2013, Twitter had its IPO and began trading on the New York Stock Exchange. At that time, contrary to his representations to investors, GRAY had purchased only 80,000 pre-IPO Twitter shares for a total cost of $1,875,000. GRAY accordingly owed his investors millions of dollars’ worth of Twitter shares.
In an attempt to make up the shortfall of Twitter stock, in April 2014, GRAY persuaded Investor-1 to invest $5 million in Archipel’s “Late Stage Fund,” which GRAY also controlled. GRAY promised that, through that fund, he would use Investor-1’s $5 million investment to purchase a purported multimillion-dollar, privately held allotment of Uber shares. However, instead of using the $5 million as promised, GRAY instead used the money to make cash payments to investors in the Social Media Funds and to purchase post-IPO Twitter shares for those same investors, including Investor-1 himself.
When Investor-1 requested documentation of the purchase of Uber shares as promised, GRAY provided Investor-1 with a fabricated stock transfer agreement (the “Uber Stock Transfer Agreement”) that purported to show that the Late Stage Fund had purchased 175,438 Uber shares. In truth and in fact, and as GRAY well knew, the fund had not purchased any Uber shares.
On February 24, 2015, GRAY gave sworn testimony to the SEC. During his testimony, GRAY falsely stated, in substance and in part, that the Uber Stock Transfer Agreement reflected a bona fide purchase of Uber shares by the Late Stage Fund.
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GRAY, 39, was arrested yesterday at his home in Lake Worth, Florida. He is charged with one count of securities fraud, one count of wire fraud, and one count of perjury in connection with his testimony to the SEC. The securities fraud count and the wire fraud count each carry a maximum sentence of 20 years in prison. The perjury count carries a maximum sentence of five years in prison. The charges carry a maximum fine of $5 million, or twice the gross gain or loss from the offense. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.
Mr. Bharara praised the work of the Federal Bureau of Investigation, and thanked the SEC for its assistance. He added that the investigation is continuing.
Today’s announcement is part of efforts underway by President Obama’s Financial Fraud Enforcement Task Force (FFETF) which was created in November 2009 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. Since the inception of FFETF in November 2009, the Justice Department has filed more than 12,841 financial fraud cases against nearly 18,737 defendants including nearly 3,500 mortgage fraud defendants. For more information on the task force, visit www.stopfraud.gov.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Damian Williams and Michael Ferrara are in charge of the prosecution.
The allegations contained in the Complaint are merely accusations, and the defendant is presumed innocent unless and until proven guilty.