A former adjunct professor at the Columbia Business School and the co-founder, chief executive, and principal owner of a software company was arrested Friday on securities and wire fraud charges for an alleged scheme to defraud about 30 investors of $3 million dollars.
Gregory Rorke, 60, appeared Friday in Manhattan federal court before United States Magistrate Judge Gabriel W. Gorenstein.
He was arrested at his home in Bronxville, New York.
U.S. Attorney Preet Bharara said: “As alleged, Gregory Rorke grossly misrepresented his character and financial stability to investors, whom he then defrauded of millions of dollars.”
A two-count complaint unsealed in Manhattan federal court alleged that from late 2009, Rorke misled investors into making investments in a convertible debt offering in his company, Navagate Inc.
Rorke’s bio on Navagate’s site said, “Since 1997 Mr. Rorke has been on the faculty of Columbia University’s Graduate School of Business. He received his undergraduate degree from Brown University and an M.B.A. from Harvard Business School.”
The DOJ said Rorke provided a personal guarantee supported by a financial statement that showed he held at least $12 million in assets, “including more than $1 million in cash, more than $5 million in ‘readily marketable securities’ and a home worth more than $1 million,” the DOJ said.
But the SEC, which announced civil charges against Rorke and Navagat, said Friday the liquid assets and real estate Rorke claimed as his own actually belonged to his wife.
She didn’t pledge any of her assets “and had no obligation to make good on Rorke’s personal guarantee,” the SEC said.
Rorke also signed a notarized affidavit showing he’d paid the Internal Revenue Service for Navagate’s tax liabilities of about $540,000.
“In truth,” the DOJ said, “the tax liabilities had not been paid, remained outstanding, and were actually increasing.” The IRS eventually filed tax liens against Navagate.
The company defaulted on the notes and Rorke didn’t pay investors under his personal guarantee.
When investors demanded repayment and threatened to sue him in late 2012, Rorke forwarded an email he said was from a representative of Hong Kong Shanghai Bank Corporation (HSBC). The email said HSBC had just signed a multimillion-dollar contract with Navagate.
In truth, the DOJ said, “the email appears to have been a complete fabrication.”
Rorke is charged with one count each of wire fraud and securities fraud. Each count carries a maximum sentence of 20 years in prison and a fine of $5 million or more.
As the DOJ says, the allegations contained in the complaint are merely accusations, and the defendant is presumed innocent unless and until proven guilty.
The SEC also charged Gregory Osborn and his New Jersey-based broker-dealer Middlebury Securities LLC in connection with the Navagate case.
Middlebury served as the placement agent for the sale of Navagate’s securities.
The SEC said Osborn and Middlebury Securities “repeatedly assured investors that Rorke’s personal guarantee was a good reason to enter into the deal despite knowing or recklessly disregarding that Rorke’s claim was false and he did not solely possess the assets listed in the personal financial statement.”
Osborn and Middlebury Securities also orchestrated payments to some earlier Navagate investors by using money from later investors — “despite knowing or recklessly disregarding that such payments are not permitted,” the SEC said.
Osborn and Middlebury Securities agreed to partially settle the SEC’s charges through an administrative order (pdf) that called for disgorgement and penalties to be determined later.
Osborn also agreed to be permanently barred from the securities industry.
Richard L. Cassin is the publisher and editor of the FCPA Blog. He can be contacted here.