Ponzi scheme traps investors with unusual promise

Ponzi scheme traps investors with unusual promise

Ponzi scheme traps investors with unusual promise In a strange case making its way through the courts south of the border, the SEC has frozen the assets of venture capital fund manager Gregory W. Gray Jr. and two of his firms, Archipel Capital LLC and BIM Management LP.

Gray is alleged to have operated a Ponzi scheme from at least June 2014 to the present.

The fund manager took $5 million from three different Archipel entities to provide fictitious returns to another Archipel entity, Social Media Fund LP.

Having raised over $5.2 million for his Social Media Fund LP, investors in the fund expected Gray would purchase approximately 230,000 discounted pre-IPO shares of Twitter for prices between $19 and $25 per share as promised in the fund’s offering documents. Only 80,000 pre-IPO Twitter shares were actually purchased at an average price of $23.44 per share.

What happened to the rest? Gray pocketed the remaining cash.

In order to repay the missing cash the fund manager created another fund, the Late Stage Fund LP, which brought in $5 million from a single investor who was promised that Gray would this time be buying discounted pre-IPO shares of Uber.

When the investor asked for proof of ownership on the Uber shares, Gray provided a fabricated stock transfer agreement and the jig was up.

Financial Advisor magazine asked Bernie Madoff whistleblower Harry Markopolos about this particular Ponzi scheme.

Markopolos had never heard of such deception before stating, “That investors actually believed retail investors can buy pre-IPO shares at a substantial discount shows we have a long, long way to go with investor education.”

Strange indeed. 
  • David McDonald 2015-03-04 10:58:58 AM
    I agree with Mr. Markopolos's comment. Sad indeed.
    Post a reply
  • Will Ashworth 2015-03-09 2:58:55 PM
    Hi Robert.

    According to the SEC complaint, the answer appears to be "no."

    "In December 2008, Gray was barred for three years from association with NYSE member firms based on findings that he had (a) engaged in unauthorized trades in his customers' accounts and (b) threatened and/or harassed complaining customers and/or their family members. This bar was upheld by the Commission on July 22, 2009"
    Post a reply