The alleged perpetrators of a pre-IPO fraud scheme in the U.S. were sentenced to between eight and 11 years in prison today in a New York court.
Last November, following a two-week trial, a jury convicted the founders and operators of StraightPath Venture Partners LLC and affiliated entities — Michael Castillero, Francine Lanaia and Brian Martinsen — on various charges in connection with a scheme that allegedly took in over US$400 million from investors.
According to court filings, between 2017 and early 2022, StraightPath operated a series of private investment funds that promised the opportunity to invest in private companies before they go public — soliciting investors through “boiler room” call centres.
The scheme acquired private shares and sold them to investors at inflated mark-ups with no disclosure and misled investors, U.S. authorities alleged.
In total, approximately US$130 million of investors’ money was misappropriated, with each of the three defendants personally taking US$25 million, it was alleged.
Additionally, the scheme hid the involvement of Castillero and Lanaia, who were previously banned from the securities industry by the U.S. Financial Industry Regulatory Authority Inc. (FINRA). Castillero and Martinsen also allegedly destroyed records to obstruct the efforts of the U.S. Securities and Exchange Commission (SEC) to uncover the fraud.
While they have indicated that they intend to appeal their convictions, on Wednesday they were sentenced in a U.S. district court. Castillero and Martinsen were sentenced to 11 and 10 years in prison, respectively; while Lanaia was sentenced to eight years.
They were also each sentenced to three years of supervised release and ordered to pay US$115 million in restitution. Additionally, they were ordered to forfeit assets obtained through the fraud.
The StraightPath entities and the funds are now under the control of a court-appointed receiver, which is charged with returning assets to investors.
The SEC has also filed parallel civil charges in the case against the criminal defendants, and several others that, it alleged, were involved in the scheme as unregistered sales agents.