Those hungry to get a piece of so-called unicorns—hot privately-held startups valued at $1 billion or more—are becoming prey to swindlers. On Tuesday, the feds announced the arrest of two men who allegedly bilked investors of $5.5 million by promising to buy them shares in prominent pre-IPO companies.
The arrests follow the grand jury indictment of Javier Carlos Rios and Jaswant Gill, aka Jason Gill, in California last week. According to the Justice Department, the two men used a San Diego fund called JSG Capital Investments to promote investment opportunities in privately held companies.
Rios and Gill never acquired any shares, however, and instead allegedly spent much of the money on restaurants, nightclubs, hotels, and shopping, authorities said in statement. And, in a classic Ponzi scheme maneuver, the men allegedly used money from later investors to pay “interest” payments in order to lull earlier investors.
“[They made] promises to purchase so-called pre-IPO shares of private companies like Uber Technologies and Airbnb using investor funds … In this manner, Gill and Rios raised in excess of $9.3 million in investor funds and are alleged to have fraudulently diverted and stolen in excess of $5.5 million,” said the Justice Department.
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The men are charged with wire fraud and conspiracy to commit wire fraud, which carries a maximum penalty of twenty years in prison, according to an indictment filed in San Francisco, where the Justice Department intends to try the case. The indictment also demands the men forfeit property including the $9.3 million of allegedly ill-gotten funds.
Even though many so-called unicorns are struggling amid a recent funding crunch (giving rise to “dying unicorns“), the alleged Ponzi scheme reflects how there remains continued interest for shares in the most well-known among them, such as Uber and Airbnb. You can see Fortune’s full unicorn list from late 2015 here.
JSG Capital Investments did not immediately reply to a request for comment.
The company’s website, which promises to help investors save for important life events like weddings and college, was still live on Wednesday afternoon.
“Our clients’ interests come first – always. We speak with the courage of our convictions. We say what we do and do what we say,” the website states.