SEC Charges Former Movie Producer With Stealing Millions From Investors

Chris Gaetano
Published Date:
Nov 10, 2016

The Securities and Exchange Commission has charged David Bergstein, a former movie producer, with stealing more than $5 million from investors who thought they were putting money into medical billing businesses but were instead paying for his personal expenses of guns, antique watches, jewelry and bonsai trees.

In 2011 Bergstein, according to the SEC, convinced Weston Capital Management, which had investments in valuable yet illiquid hedge funds, to trade those interests to a special purpose entity he created to invest in medical billing businesses in exchange for an equity stake. This was done through a hedge fund controlled by Weston Capital Management, despite the fact that it was not technically allowed to make those kinds of investments. Weston Capital then used assets from another fund it controlled to make $8.4 million in loans to that same special purpose entity and allowed it to use the hedge fund assets it had just received as collateral. The SEC said this was a conflict of interest, as the entity was using assets given to it by one fund to collateralize a loan given to it by another fund controlled by the same company.

The SEC said Bergstein skimmed about $2.4 million from this loan for his own personal use as well as to pay the business expenses of an associate. 

Further, the securities regulator said that Weston Capital never told investors in either fund about these incidents. While the investment company eventually did disclose the equity investment, it still failed to reveal the loan it had made, with the SEC saying the company deliberately hid the issue from its investors. Faced with questions about the deal, Bergstein drafted what the SEC said was a sham letter, adding that the loan came not from one of the Weston funds, but from a company Bergstein controlled called Swartz IP, which Weston then began telling its investors. 

The SEC said that Bergstein later enacted a similar scheme where he convinced Weston to put money from one of its hedge funds into Swartz IP, sending them a fraudulent balance sheet that stated the company had $16 million in assets when, in fact, it had none. He said that the investment would be used to buy stakes in medical billing companies. Weston wired more than $17.7 million from one of its funds to Swartz IP and Bergstein, in turn, wired $3.5 million of those monies to various third parties, including entities he controlled for his personal benefit. 

“The use of elaborate corporate transactions to mask old-fashioned theft of investor monies will not prevent the SEC from enforcing the federal securities laws and protecting investors,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.  “Violators will be held to account no matter the artifice used to perpetrate their frauds.” 

The SEC’s complaint charges Bergstein with violating Section 10(b) of the Securities Exchange Act and Rules 10b-5(a) and (c) and aiding and abetting violations by Weston Capital Asset Management of Section 206 of the Investment Advisers Act of 1940 and Rule 206(4)-8.  The SEC is seeking injunctions, the return of allegedly ill-gotten gains, and imposing monetary penalties.

Click here to see more of the latest news from the NYSSCPA.