EAST GREENWICH—David Wagner, an East Greenwich resident and chairman of multiple venture capital corporations, pleaded guilty to securities and wires fraud in a Manhattan federal court. An announcement of the plea was made by the Department of Justice, which further examined how Wagner defrauded more than 30 investors of some $8 million.
The acting US attorney for the Southern District of New York, Audrey Strauss, spoke to how Wagner operated a collection of corporate entities collectively referred to as Downing as a Ponzi-like scheme. According to Strauss, Wagner solicited over $8 million in ill-gotten gains by furnishing materially false and misleading statements to investors in Downing and misappropriated much of those funds for use in paying management fees, repaying prior investors and covering personal expenses.
“As he admitted in court, David Wagner conned employee-investors into handing over more than $8 million they thought would be invested in a viable operation that would generate returns,” Strauss said. “Instead, Wagner’s business was largely a sham, and employee-investor funds went to pay Wagner’s personal expenses or pay off other investors in Ponzi-like fashion.”
According to his Indictment, Wagner solicited investments as the CEO for Downing from at least December 2013 through 2017. The so-called venture capital firm told its employee-investors (who both bought in and worked for the company) that it would invest in healthcare start-ups, or portfolio companies, and provide them with sales, operations support and management experience to help generate greater returns for them. Wagner solicited the $8 million from these employee investors as a condition of their employment, and received funds from individuals across the nation.
After making the required investment of between $150-250K in Downing and beginning their employment, the employee-investors soon learned that the company did not have access to millions of dollars in funding, often could not make payroll, had virtually no products to sell and was funded overwhelmingly by employee investments
The employee-investors also found out that Wagner and Marc Lawrence, a president of some of his companies, were misrepresenting the company’s portfolio, product readiness and capacity to generate revenue, though how such information was misrepresented shifted with time. The Manhattan court found that Wagner systematically sought and obtained employee-investor money through materially false and misleading statements.
Beginning in or about May 2016, several employee-investors brought lawsuits against Wagner and, by May 2016, Wagner attempted to prop the scheme up by creating a new employee-invested company called Cliniflow Technologies LLC. Cliniflow, however, was simply a new name used by Wagner to solicit investments from new employee-investors that was not tainted by the lawsuits filed against Downing entities. A majority of the over $1.5 million raised by Wagner through Cliniflow was transferred to other Downing entities and used mostly to pay for Wagner’s personal expenses and the repayment of prior investors.
In January 2017, Wagner obtained a $400K loan and a $100K grant from the Connecticut Department of Economic and Community Development for Cliniflow on the basis of materially false statements. Wagner then transferred most of those state-given funds to other Downing entities and used a portion of the funds to purchase a luxury car for his daughter.
Wagner, having pleaded guilty as part of an agreement with the government, will now have to wait another three months before finding out how he will spend the coming years of his life.
“David Wagner now awaits sentencing for his crimes,” Strauss said.
Wagner pleaded guilty to two counts of securities fraud and one count of wire fraud, each of which carries a maximum sentence of 20 years in prison and, as part of his plea agreement, Wagner will forfeit $549K and pay restitution of $7.85 million to victims of his criminal conduct. He will be sentenced Jan. 11.
A similar case took East Greenwich by storm last year when Monique Brady, an EG-based attorney and businesswoman, conned friends, family and business associates out of over $10 million which she used in part to help fund an extravagant lifestyle including the purchase of a million-dollar home.
In that case, Brady was found guilty of wire fraud, aggravated identity theft and obstructing an IRS investigation when she attempted to flee the country to Vietnam. Brady was sentenced to 96 months’ imprisonment, 3 years supervised release, and ordered to pay restitution to her victims totaling approximately $4.8 million.
The case against Wagner’s alleged accomplice, Marc Lawrence, is still pending.