More Than $3.4 Million Raised in Alleged IPO Scam and Sham Startup Company
SAN FRANCISCO — LAWFUEL – The Law News Network – United States Attorney Kevin V. Ryan announced that a federal grand jury in San Francisco has indicted Guindi N. Guindi, of Houston, Texas, on charges of fraud and money laundering in connection with a scheme to defraud investors out of millions of dollars through the fraudulent sale of Initial Public Offering (“IPO”) stock in well-known companies, as well as a sham startup investment company called Netcap Holdings, Inc.
Mr. Guindi, 46, made his initial appearance in federal court yesterday on the indictment, which was ordered unsealed. Federal agents arrested Mr. Guindi in Houston on October 24, 2005, and he remains in custody pending a detention hearing to be held on Wednesday, November 16, 2005, at 9:30 am before Magistrate Judge Vadas in San Francisco.
According to the indictment, Mr. Guindi, formerly a resident of Hillsborough, is alleged to have duped investors through two related investment schemes, raising a total of more than $3.4 million, much of which was diverted to Mr. Guindi’s personal use.
The IPO Scheme
The indictment alleges that during the “Internet bubble” of late 1999 and 2000, Mr. Guindi represented to various Marin County investors that he had special access to restricted IPO stock in companies that were about to “go public,” including United Parcel Service (UPS), Freemarket, Avanex, Palm, WebMethods, and Sycamore Networks.
Based on these representations, the indictment alleges, investors gave Mr. Guindi a total of approximately $950,000 to purchase IPO stock on their behalf. According to indictment, Mr. Guindi, in fact, never had the special access to IPO stock that he claimed he had, and that he diverted the money toward uses other than stock purchases, such as personal expenditures and repaying earlier investors.
The Netcap Scheme
In 2000, Mr. Guindi formed a business called Netcap Holdings, Inc., a Delaware corporation, and told potential investors that Netcap would serve as a source of funding for start-up companies, as well as an incubator for high-technology businesses.
The indictment alleges that Mr. Guindi made numerous false statements to potential investors, both orally and in written materials, about Netcap. For example, the indictment alleges, Mr. Guindi represented that Lee Iacocca (among other well-known individuals) had agreed to sit on Netcap’s Board of Advisors, when Mr. Iacocca, in fact, never made any such agreement. Mr. Guindi also falsely represented that he had a personal investment portfolio worth up to $20 million, and that he would be investing millions of dollars of his own money in Netcap.
According to the indictment, investors poured a total of more than $2.5 million into Netcap to fund the company and its putative investments. Of this money, the indictment alleges, Mr. Guindi transferred approximately $2 million to his own personal bank accounts, primarily for his personal spending.
“One of this Office’s highest priorities is the prosecution of investment fraud, particularly the fraudulent sale of securities,” said Kevin Ryan, United States Attorney for the Northern District of California. “Through fraudulent schemes such as the ones described in this indictment, honest and well-meaning investors can find themselves cheated out of millions of dollars. This indictment demonstrates my Office’s commitment to bringing to justice those who would enrich themselves through fraud, at the expense of innocent investors. I would like to thank the FBI for their investigation, as well as their continuing prioritization of white-collar cases.”
The indictment charges Mr. Guindi with nine counts of wire fraud, in violation of 18 U.S.C. § 1343; two counts of mail fraud, in violation of 18 U.S.C. § 1341; and three counts of money laundering, in violation of 18 U.S.C. § 1956(a)(1)(A)(i). The maximum statutory penalty for each of these counts is 20 years imprisonment, a fine of $250,000, and restitution. However, any sentence following conviction would be imposed by the court after consideration of the U.S. Sentencing Guidelines and the federal statute governing the imposition of a sentence, 18 U.S.C. § 3553.
An indictment contains only allegations against an individual and, as with all defendants, Mr. Guindi must be presumed innocent unless and until proven guilty.
Assistant United States Attorney Michael Li-Ming Wang is prosecuting the case, with the assistance of Helen Yee. The prosecution is the result of a two-year investigation by the Federal Bureau of Investigation.List your legal jobs on the LawFuel Network