The Securities and Exchange Commission today announced fraud charges and asset freezes obtained in a case filed against a New Jersey-based fund manager and two firms he controls that marketed shares in promising pre-IPO tech companies in the Bay Area. The SEC alleges they stole $5.7 million from investors and diverted millions more to other improper and undisclosed uses.

Specifically, the SEC alleges that John Bivona used money raised through Saddle River Advisors and SRA Management Associates to pay off earlier investors, prop up other funds, and pay family-related expenses.  He secretly steered the lion’s share of misappropriated funds to his nephew Frank Mazzola, who was barred from the securities industry in a prior SEC enforcement action and is charged along with Bivona and his firms in the complaint filed Monday in federal district court in California.

“We allege that Bivona preyed on investors seeking to invest in popular pre-IPO technology companies and hid the scheme by avoiding outside reviews of the funds and depriving investors of financial statements despite promises to do so,” said Jina L. Choi, Director of the SEC’s San Francisco Regional Office.

According to the SEC’s complaint:

• Bivona raised more than $53 million from investors, and the money he was siphoning away for undisclosed uses left his firms continuously short of the cash needed to buy the shares promised to investors.
• Bivona kept the scheme going by indiscriminately transferring money among more than a dozen bank accounts associated with an array of different entities. 
• Bivona used investor money to pay Mazzola’s credit card bills, income taxes, a car loan, attorney fees, and the mortgage on a Jersey Shore vacation home.
• Investors were told they would receive financial statements for the funds on an annual basis.  But no financial statements were ever prepared.
• Bivona and Mazzola failed to register the offering with the SEC and thereby violated the bad actor rules of the federal securities laws, which prohibit companies from relying on registration exemptions under Rule 506 of Regulation D if a promoter or investment manager like Mazzola has a disqualifying event like his fraud-based injunction.

Investors can learn more about the risks involved with investing in unregistered offerings by reading such SEC investor bulletins as 10 Red Flags That An Unregistered Offering May Be A Scam and Private Placements Under Regulation D.

The SEC’s complaint seeks permanent injunctions plus disgorgement with prejudgment interest and monetary penalties from Bivona and the firms as well as Mazzola. The SEC obtained a court order to freeze the assets of Frank Mazzola and his wife, a relief defendant, and ordering the appointment of an independent monitor over Saddle River Advisors, SRA Management, the SRA Funds, and other affiliated entities. The order also preliminarily enjoins Bivona, Saddle River Advisors, and SRA Management from violating the antifraud provisions of the federal securities laws and raising money from investors.

The SEC’s investigation was conducted by Jessica W. Chan and Ellen Chen of the San Francisco office, and the case was supervised by Jeremy E. Pendrey.  The SEC’s litigation will be led by John Yun, Marc Katz, and Ms. Chan.