Michael Liberty advertised that Mozido, the start-up he founded which once boasted a valuation of $5.6B, would revolutionize mobile payments and bring financial services to 2 billion unbanked adults worldwide.
But securities regulators claim Liberty hyped up Mozido while raising $55 million that mostly went into his own pocket.
The SEC has sued Liberty for fraud in federal court in Maine, saying Liberty stole most of the $55M he purportedly raised for Mozido from 200 individual investors. Instead, the SEC claims, those investors funded shell companies controlled by Liberty, who used the money for private jet flights, expensive homes and cars, a dairy cow farm in Maine, and even a movie his then girlfriend, Brittany Abbas, was producing.
In January, Liberty was released from federal prison following his conviction in November 2016 for making illegal campaign contributions. In addition to the civil charges against Liberty, the SEC sued four people who regulators claim helped him--Liberty’s wife, Abbas, together with his longtime lawyer, Liberty's cousin and his cousin’s friend.
Liberty and Mozido were the subject of a Forbes Magazine story published in July 2016 that suggested the company had little to show for the $300 million it had raised and that some of Mozido’s financial dealings appeared to enrich Liberty, who had a track record as a shady wheeler-dealer. The SEC charges come at a time of heightened scrutiny over the fundraising activities that have taken place around highly valued private tech start-ups.
Liberty’s pitch for Mozido attracted big names from Wall Street to Silicon Valley. He raised money from hedge fund legend Julian Robertson and Google billionaire Eric Schmidt’s venture fund. To Mozido’s board Liberty attracted Randi Zuckerberg, Robert Selander, the former CEO of Mastercard, Henry Duques, the former CEO of First Data Corp., and Richard Braddock, the former president of Citicorp. Todd Bradley, who once ran Hewlett-Packard’s biggest unit, became Mozido’s CEO. Jack Grubman, the disgraced 1990s telecom analyst, helped facilitate Mozido’s biggest deal.
The biggest financial backer of Liberty’s Mozido venture was $1 trillion asset manager Wellington Management and its hedge fund star, Nicholas Adams.
Another high-profile money manager who personally invested and got deeply involved in Mozido was Robert Turner, founder of Turner Investments, which is based in the Philadelphia area.
But while Liberty was creating all this hype around Mozido, the SEC claims that between 2011 and 2014 he was separately raising tens of millions of dollars from 200 individuals, many of whom were small unsophisticated investors, using shell companies like Mozido Invesco that despite the name had no business operations and little to do with Mozido itself.
Liberty has been waging different battles with the SEC for over a decade.
He started out as a Maine real estate developer focused on federal- and state-subsidized housing, but his investment activities broadened and eventually got the attention of securities regulators. In 2006, the SEC charged Liberty with misappropriating money from a Philadelphia venture capital fund, claiming $4.5 million went to Liberty for his personal benefit.
Liberty settled the charges without admitting or denying the allegations. After the SEC waived all but $600,000 of the disgorgement Liberty was required to pay under the settlement, federal judge Jan DuBois signed off on a final judgment, saying the waiving of $5.4 million of disgorgement was contingent on the accuracy of Liberty’s financial declaration.
In October 2016, the SEC reopened the 2006 lawsuit over the $5.4 million disgorgement waiver, claiming Liberty misled the federal judge with “fraudulent, sworn financial declarations.”
Liberty said the accusations had no merit and has been fighting the SEC on the issue in federal court in Philadelphia.
Now, Liberty is ready to fight the SEC over the Mozido fraud charges it filed in Maine, the state where Liberty was raised and lived most of his life.
“Mr. Liberty will vigorously defend himself through the court system,” said Liberty’s lawyer, Jay Debow, in a statement. “We look forward to the day when Mr. Liberty’s name is cleared. The SEC has unfairly targeted him with regard to this investigation for over six years.”
According to the 66-page complaint the SEC filed in federal court in Maine, Liberty sold investors promissory notes issued by shell companies by misleading them into thinking the shell companies owned large interests in a financially healthy Mozido, which Liberty founded in Austin, Tex.
But the SEC says “Liberty took the investors’ money for himself,” and his shell companies either did not possess ownership in Mozido, were prohibited from selling them, or held ownership that was worth a tiny fraction of what Liberty told investors.
The SEC claims that Liberty did not even have a bank account in his own name and that he and his wife, Abbas, used the bank accounts of the shell companies as “their personal bank account.”
"They tricked investors into believing that they were funding fast-growing startup companies.
They were not," the SEC says in its complaint.
"Liberty and his accomplices lied to those investors about the financial prospects of the startups, the use of their investment dollars, Liberty’s involvement with the startups, and the nature of the investments offered."
There appears to be little promise left at Mozido, one of the most richly funded financial technology companies in recent years. The company’s top executives, including CEO Todd Bradley, quietly quit last year.
No replacements have been announced.
Mozido has been kept afloat by a $70 million loan from Brevet Capital Management, which was used to make months of missed payroll payments to employees. Last year, the company was trying to sell its Chinese PayEase unit, Mozido’s last revenue generating asset, but there has been no public indication of a sale.
