Facebook IPO Investor Scam Leads to Arrest of Three Men

Three men who claimed they had special access to Facebook Inc. (FB) shares before its initial public offering last year were charged with defrauding an investor of $6.7 million.
Eliyahu Weinstein, 37, Alex Schleider, 47, and Aaron Muschel, 63, were charged in a complaint unsealed today in federal court in Newark, New Jersey. They offered blocks of Facebook shares in three transactions to a New Zealand investor before the company’s IPO last May, even though they had no access to them, authorities said.
At the time, Weinstein was under indictment on charges that he ran a $200 million real-estate fraud, U.S. Attorney Paul Fishman said today in a statement. In January, Weinstein pleaded guilty to the Ponzi scheme in federal court in Trenton, New Jersey. Facebook, based in Menlo Park, California, is the world’s largest social networking service.
“The defendants took advantage of the buzz around the Facebook IPO to fleece unsuspecting investors,” Fishman said. “Shamelessly, Eliyahu Weinstein allegedly committed these crimes while under federal indictment for another investment scheme, even using stolen money to pay his legal fees.”
The investor lost $3 million on the Facebook deals, $2.83 million on a purported stake in a Miami apartment complex, and $675,000 in another scheme, according to a Federal Bureau of Investigation arrest complaint.

Court Appearances

Weinstein and Schleider, both of Lakewood, New Jersey, and Muschel, of Brooklyn, New York, appeared today in federal court in Newark.
They were charged with wire fraud conspiracy and face as many as 20 years in prison that count. Weinstein was charged with wire fraud conspiracy while on pretrial release, which carries a 30-year maximum penalty. He and Muschel also were charged with transacting in criminal proceeds and face as many as 10 years on that charge.
U.S. Magistrate Judge Madeline C. Arleo revoked Weinstein’s $10 million bail, saying he is accused of crimes while on pretrial release. He is scheduled to be sentenced next month. Prosecutors said he used some of the proceeds of the Facebook fraud to pay his legal fees.
His two lawyers in court, Henry Klingeman and Mark D. Harris, will withdraw “because they believe this is a legal conflict,” Assistant U.S. Attorney Gurbir Grewal told the judge. After the hearing, Klingeman and Harris declined to comment.

Two Released

Arleo released Schleider and Muschel on $1 million bonds. Schleider’s attorney Andrew Citron declined to comment. Muschel’s attorney James T. Moriarty said, “He’s a perfectly legitimate guy. How he’s involved in this is another story.”
He said “it was known in the community that Weinstein was under indictment.”
Weinstein pleaded guilty on Jan. 3 to a $200 million fraud that authorities said initially targeted fellow members of the Orthodox Jewish community. He spent the proceeds on luxury cars, jewelry and gambling trips, as well as his collection of Judaica, Fishman said at the time.
The FBI complaint refers to three unindicted co-conspirators, including a lawyer who lives in Lakewood and has offices in Seaside Heights, New Jersey, and Los Angeles. Another conspirator was a Lakewood resident, identified as C.R.E., who worked in Weinstein’s home as his personal assistant, according to the FBI.