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Attorney disputes SEC charges over Facebook stock case

Banking & Finance
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The lawyer for a Charleston attorney accused of aiding and abetting a financier charged with fraud over the sale of fake pre-IPO shares of Facebook has denied his client’s guilt in the case.

Charleston attorney John “Jay” Seibels Jr. disputes that his client, John B. Kern, has even been charged.

KernIn a news release dated March 19, the Securities and Exchange Commission said Craig L. Berkman had been charged with fraudulently selling pre-initial public offering shares of Facebook and other social media companies.

The news release stated: “The SEC’s Enforcement Division also charged John B. Kern of Charleston, S.C., for his participation in the fraud as legal counsel to some of Berkman’s companies. When investors in Berkman’s phony Facebook fund began questioning what happened to their money after Facebook’s IPO occurred, Kern falsely assured them that their money was used to purchase pre-IPO Facebook stock being held for them by unnamed counterparties.”

In an email to the Charleston Regional Business Journal on Friday night, Seibels said that Kern has not been charged but is only a “respondent” in the case. He denied that Kern is guilty of “allegations of misleading investors,” which are outlined in the SEC order (.pdf) and in the news release.

Previous coverage

A spokesman for the SEC confirmed the accuracy of the news release in a phone call Monday morning and said the allegations, outlined in detail in the SEC order, were civil charges. The SEC does not have criminal prosecutorial authority, he said.

The Business Journal reported on March 21 that the charges were filed as an administrative proceeding by the SEC. A fact-finding hearing before an administrative law judge has been ordered for 30 days after the charges were filed.

Seibels said Kern was considering filing lawsuits against Berkman and would fully cooperate with the SEC’s investigation “but will aggressively fight any allegations against him.”

“Kern acted as an attorney for the venture capital fund managed by Berkman and is denying any wrongdoing,” Seibels wrote.

“I categorically deny involvement in any fraud upon investors, and I look forward to the opportunity provided by the SEC to present the true facts,” Seibels quoted Kern as saying in the news release from his office.

Berkman is accused of masquerading as a fund manager and lying to investors, telling them he had special access to shares of Facebook, LinkedIn, Groupon and Zynga before the companies went public. Pre-initial public offering shares for all of the companies, most recently Facebook, were in high demand, which led to Facebook’s decision to increase its initial strike price.

Kern served as legal counsel to some of Berkman’s companies and vouched for Berkman when investors began asking what had happened to their money, according to SEC investigators.

Seibels’ email, which appears to have been sent to several local and national media outlets, also asked news organizations to retract stories that referred to his client as a “co-defendant” or as having been “charged” and to cease and desist from reporting this in the future.

S.C. Press Association attorney Jay Bender said neither the Business Journal nor the SEC referred to Kern as a “co-defendant,” but he said it was accurate to say Kern had been charged because that’s what the SEC said in its statement.

“It’s a fair and accurate report of an official document,” Bender said. “I’m not sure what you would retract.”

Kern, Berkman and several limited liability companies are listed as “respondents” in the SEC order outlining the accusations and the timeline. Seibels also said Kern was reserving the right to sue any publication for libel “through negligent or reckless reporting.”

Bender said it’s not negligent to report what’s provided in a government document.

“It strikes me that he’s thinking that his best defense here is to go on offense, and he’s making threats that seem to be baseless,” Bender said. “You can say he’s certainly been charged.”

Berkman and Kern have 20 days to respond to the allegations from the date of the order filing, the SEC said.

Reach Andy Owens at 843-849-3142.

Reach Andy Owens at 843-849-3142.

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