The case of Attorney John B. Kern has been previously reported but this story provides far more details of just how egregious the fraud committed was in reality. Just provided further proof of the ridiculous penalty of a 3-year suspension - that turns out to really only be 18-months actually - that should have been nothing less than permanent DISBARMENT.
South Carolina Attorney John B. Kern Suspended 3-Years: Ventures Highway Results in a $13.2 Million Fraud
A three-year suspension from the South Carolina Supreme Court for Attorney John B. Kern.
The charges against Kern arise from Securities and Exchange Commission (SEC) proceedings initiated against Kern and others following an SEC investigation of a fraudulent investment scheme perpetrated by Craig Berkman. Berkman fraudulently raised around $13.2 million from approximately 120 investors by selling membership interests in limited liability companies (LLCs) that he controlled. Unfortunately for these investors, Berkman was subject to a $28 million judgment in Oregon—in connection with another fraudulent investment scheme—and was also facing bankruptcy in Florida. Berkman began to use some of the funds from his new ventures to pay his bankruptcy obligations in Florida. Kern helped form and served as general counsel for Ventures Trust II LLC (Ventures II) and Face-Off Acquisitions, LLC, two of the LLCs Berkman used to carry out his crimes. Berkman pled guilty to criminal conduct in a criminal action parallel to the SEC's administrative proceeding.
He consented to an order that denied him practice privileges before the SEC, which the court concluded was not a basis for reciprocal discipline
We find the SEC is not a jurisdiction for purposes of reciprocal discipline. We also find that because Kern failed to take exception to the Panel Report, the Panel's findings that Kern committed misconduct are deemed admitted pursuant to Rule 27(a), RLDE, Rule 413, SCACR. Rule 27(a) provides in pertinent part, "The failure of a party to file a brief taking exceptions to the [Panel Report] constitutes acceptance of the findings of fact, conclusions of law, and recommendations." Rule 27(a), RLDE, Rule 413, SCACR. As noted above, Kern did not file a brief taking exceptions to the Panel Report. Kern's failure to adhere to Rule 27 is consistent with his conduct throughout these disciplinary proceedings.
He made false statements to investors and an attorney
Kern's primary defense before the Panel and at oral argument was that he was totally unaware of Berkman's malfeasance and that as soon as he became aware, he resigned as general counsel for the investment entities and encouraged a principal in the companies to act as a whistleblower to the SEC. Kern's professed ignorance of Berkman's malfeasance does not save him. At the Panel hearing, Professor John Freeman was qualified as an expert in the field of securities regulation and testified as to a lawyer's duties and obligations when acting as general counsel for a private securities company. Professor Freeman explained that when a company makes representations to investors as to how their money is to be invested, general counsel is obligated to exercise due diligence to ensure the money is invested for the represented purposes. We conclude Kern acted recklessly in making the foregoing assurances to Berkman's bankruptcy attorney and to the Ventures II investors and that Kern failed to exercise the required diligence to ensure investors' money was invested for the purposes represented to them.
We find Kern committed professional misconduct by recklessly providing false information to the investors and to Berkman's bankruptcy attorney. We find the appropriate sanction for Kern's misconduct is an eighteen-month definite suspension, and we order Kern to pay the costs of the disciplinary proceedings within thirty days of the date of this opinion.
ABA Journal reported on the Berkman conviction
A prominent graduate of an Oregon law school who once headed the state’s Republican party and was a candidate for governor has taken a plea in a criminal securities fraud case.
Craig Berkman, 71, sobbed in federal court in Manhattan on Tuesday as he apologized and pleaded guilty to one count each of securities and wire fraud, according to Bloomberg and Reuters. The charges concerned a scheme in which he persuaded 120 investors to hand over $13.2 million by pretending he had access to scarce shares of social media stock in companies including Facebook
Source: Professional Legal Blog