It began with Stephen R. Green. Who is Stephen R. Green? Here is what a cached version of his online biography from November 22, 2006, stated at the time:
Stephen R. Green
Stephen Green is Managing Partner of The Mayfair Group. Prior to forming Mayfair, Mr. Green founded Ridgely Management, a predecessor firm to Mayfair . He has held senior management positions in the capital markets area at Renaissance Capital and Bankers Trust NA, after beginning his career as Analyst in the Credit Policy Group at Chase Manhattan NA. Mr. Green attended the University of North Carolina at Chapel Hill as a John Motley Morehead Scholar, and currently serves on the Board of the University of North Carolina 's Johnson Honors Program. He is also a founding and current member of The North Shore Land Alliance, a conservation group committed to the preservation of open space on the north shore of Long Island, and a Nature Conservancy affiliated non-profit organization.
Imagine, a few years ago, this fine, upstanding gentleman calls you about a deal. A deal that he is working. Something that he thinks will be big. And this conversation is all taking place before the Great Recession when, well, you remember, when dollar bills were just lying there on the street for the picking. What could possibly go wrong if you sat for a spell with a gentleman with Stephen R. Green's credentials?
Turning to the Dark Side in 2005
Sometime in late 2005, you would begin to find out just what could go wrong. Trouble is, you just might not have felt the hook set in your mouth as you bit down on the squirming worm. It was a slow and subtle tug.
Stephen R. Green falsely represented to an individual investor ("Investor 1") that he was starting an investment company that purportedly planned to invest in the hospitality industry, and more specifically restaurant franchises. Green called this new company the Mayfair Group, and in March 2006, Investor 1 invested through Green approximately $1 million in this new venture. Or so Investor 1 thought.
Going Back to the Well
Next, in late 2007, Green falsely represented to Investor 1 that another investor ("Investor 2") was prepared to invest $18 million in Mayfair Group, and explained to Investor 1 that Investor 1's stake would be diluted unless he invested an additional $1 million.
Now, to be fair, Investor 1 may not have been totally foolish and blindly trusting. Apparently, he wanted some proof about this additional $18 million investment from Investor 2, and Green provided a Restated Agreement of Limited Partnership that falsely represented that Investor 2 had invested $18 million with Mayfair Group. Unfortunately, it doesn't appear that Investor 1 verified that investment because there is no indication that he received bona fide copies of bank account statements, copies of checks/transfers, or other proof.
A word of warning from a veteran Wall Street lawyer, if you contemplate investing in such a deal, demand verified proof of the source of funds, the transfer history of those funds, and where they finally came to rest. And verified proof doesn't mean a photocopy or an impressive document that anyone can fabricate on a laptop these days. Get it yourself and directly from the financial institutions involved.
If Investor 1 had been a particularly savvy person, he or she might have hired a lawyer to draft some terms for the initial $1 million investment. Among the terms that I would have suggested to my client would have been an anti-dilution provision. In plain English, I'm giving you the first million towards Mayfair. You're giving me X% of the company in exchange. If you go out and raise any more bucks, that's coming out of your remaining percentage and not mine. Do what you want to raise more cash but I keep my X% intact. Of course, I would likely have added a whole batch of equally onerous terms, but Investor 1 never called me - and from what I'm seeing, I don't think that he ever retained any lawyer to protect his interests.
By now, I'm guessing that you have an inkling where this is all headed. On November 20, 2007, Investor 1 transferred an additional $1 million to Mayfair Group's bank account. Investor 1 is now caught on Green's hook to the tune of $2 million.
Three Bites on One Hook
Feeling the tug on his hook, line, and sinker, Green tries to reel in his big fish.
Did I tell you about Mayfair India? That's probably how Green started the next con of Investor 1. Somehow, the illustrious Mayfair Group formed a subsidiary called Mayfair India, which was created solely to invest in Copal Partners L.P. If you do some online research, you will find a company called Copal Partners at http://copalpartners.com, which represents that "Copal Partners is widely regarded as the leading outsourced research and consulting provider to financial institutions and corporations worldwide. With approximately 1,000 employees situated in the world's major commercial centers, and investors including Deutsche Bank, Citigroup and Bank of America Merrill Lynch, the Company is ideally positioned to service the requirements of the world's most sophisticated clients." You got to admit, that's impressive sounding. Copal Partners appears to be a real company. It also seems that Copal's name was simply being thrown around by Green.
Green falsely represented to Investor 1 that he held warrants in Copal, which he said was getting ready to "go public" on the London Stock Exchange by the end of 2006, and that the warrants could be converted into shares of Copal provided that he could obtain $2 million to finance the warrant-to-shares transaction. Green falsely asserted that Mayfair Group would invest $1 million, that Green would personally invest $250,000. That's all wonderful sounding and given that Investor 1 already owned $2 million of Mayfair Group, you would think that he would be satisfied with this apparent windfall. Of course, Green had this one minor problem - he needed just another $750,000 from Investor 1. You know, so that, well, so that this all could just happen and work out for everyone.
On August 7, 2006, Investor 1 invested approximately $750,000 in Mayfair India, after which, Green falsely represented to Investor 1 that he now owned approximately a 7% equity interest in Copal, and that his investment had doubled or trebled in value. Hallelujah! Open the champagne!! Investor 1 is rich - well, richer. I mean, after all, if he had nearly $3 million lying around to invest in Mayfair Group and Mayfair India he was already doing quite well by my standards.
The Best Laid Plans
Except, you know, there was this one minor, teeny-weenie, little hitch. Contrary to Green's representations, he never made an investment in Copal on behalf of Mayfair Group, Mayfair India, himself or Investor 1; and no Copal shares were ever issued to Green, Mayfair Group, or any of its subsidiaries. Oops.
Arrested
On August 13, 2009, Stephen R. Green, the former Chairman and Chief Excecutive Officer of Mayfair Capital Group, was arrested by FBI agents on charges of securities fraud and wire fraud. Apparently, Green's scams didn't just involve Investor 1 but also a number of other defrauded individuals. Green was subsequently charged with two counts of securities fraud and two counts of wire fraud. Each securities fraud count carries a maximum sentence of 20 years in prison and a maximum fine of $5 million, or twice the gross gain or loss from the offense. Each wire fraud count carries a maximum sentence of 20 years in prison and a maximum fine of $250,000, or twice the gross gain or loss from the offense.
Pleads Guilty
On December 14, 2009, Green pleaded guilty to two counts of securities fraud. As part of his plea agreement, Green agreed to forfeit approximately $5.75 million dollars, representing the amount of funds that he stole from the investors.
Sentenced
On May 13, 2010, United States District Court for the Southern District of New York Judge John G. Koeltl sentenced Green to 41 months in prision for committing securities fraud for scheming to defraud investors of over $5.85 million. In addition to his prison term,Green was sentenced to three years of supervised release and ordered him to pay $5,775,000 in restitution and to forfeit $5,775,000 in proceeds from his offenses.