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Editor: Eric C. Chaffee
Univ. of Toledo College of Law

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Thursday, December 4, 2008

Silicon Valley Venture Capitalist Settles SEC Fraud Charges

The SEC filed a civil injunctive action against Silicon Valley venture capitalist, William J. "Boots" Del Biaggio III, in federal district court in the Northern District of California alleging that he engaged in two distinct securities fraud schemes, defrauding investors, banks and private lenders out of $65 million. The complaint alleges that Del Biaggio used the funds to maintain a lavish lifestyle, which included buying an interest in a professional hockey team, satisfying substantial gambling debts, and paying expenses on his family's luxury home. Without admitting or denying the complaint's allegations, Del Biaggio has agreed to a permanent injunction from further violations of the antifraud provisions of the federal securities laws. Del Biaggio also has agreed that, at a later date, the court in this matter shall determine the amount of ill-gotten gains (disgorgement) and civil monetary penalties that Del Biaggio shall be required to pay.

According to the Commission's complaint, Del Biaggio engaged in two distinct securities fraud schemes. First, Del Biaggio fraudulently pledged securities owned by innocent customers of a San Francisco-based broker dealer as collateral for more than $45 million in personal loans. Beginning in August 2007, Del Biaggio obtained brokerage account statements of unknowing customers with the help of a friend who was a managing director at a San Francisco brokerage firm, and then falsified the account statements to make it appear that Del Biaggio owned the assets in the accounts. To obtain more than $45 million in loan proceeds, Del Biaggio supplied the forged account statements to multiple banks and private lenders and signed agreements pledging the securities in the innocent customers' accounts. As alleged in the complaint, Del Biaggio used $25 million of the loan proceeds to purchase an interest in the Nashville Predators professional hockey team, and used the rest for other personal expenses.

In the second scheme, according to the Commission's complaint, Del Biaggio misappropriated more than $19 million from individual investors he advised. The Commission alleges that between 2003 and 2008, Del Biaggio used his reputation as a prominent venture capitalist and role as the founder and CEO of established venture firm Sand Hill Capital L.P. to entice dozens of his advisory clients to invest in three investment funds he formed. The complaint alleges that Del Biaggio then misappropriated the money or used it to buy stocks which he then pledged as collateral for personal loans. The Commission alleges that Del Biaggio used the proceeds of his fraud to pay for other business and personal expenses.

Separately today, the U.S. Attorney's Office for the Northern District of California (USAO) also filed criminal charges arising from some of the same conduct that is alleged in the Commission's complaint.

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