In the months running up to Facebook Inc.’s 2012 initial public offering, Shervin Neman was working the phones looking for buyers and sellers of the social network’s privately held shares. He reached out to big-name banks and investment firms on behalf of wealthy investors up and down the West Coast.

The problem, authorities allege, is that he didn’t get very far in actually obtaining Facebook stock. Neman’s Century City hedge fund, Neman Financial, collapsed, and he is facing a May criminal trial on fraud charges, accused of running a Ponzi scheme long on promises and short on actual investments.

Now, his latest claim on the eve of trial is the most eye-popping of all: Neman says he had a $4 billion deal in place to buy pre-IPO Facebook shares through Citigroup, but that the deal evaporated when the banking giant emerged as an underwriter of the offering.

Neman’s claim, appearing in a lawsuit against Citigroup, extensively cites negotiations with the bank, but is less detailed on how close a deal was to being completed or from where, exactly, the money would have come. Legal experts said revealing this alleged deal now could be timed to bolster defense of his criminal charges, which carry a maximum sentence of 60 years in prison.

“He may use the filing to say this was no Ponzi scheme, that ‘I was going to take all the money and had it all ready to go, and everything would have been just peachy if Citibank hadn’t breached this contract,’” said Gerald A. Klein, an attorney who reviewed the case for the Business Journal. “Certainly the timing of the lawsuit opens the question of what its purpose is.”

Neman attempted to capitalize on the high demand for pre-IPO Facebook shares as employees and other private shareholders sold their shares through brokers and online marketplaces. Private trades in the area of $1 billion were discussed, but none that large was known to be executed.

Brian Mulligan, who did not directly handle pre-IPO shares but did discuss them with Facebook insiders, including Sean Parker, as then-vice chairman of Deutsche Bank’s media and telecommunications group, said a lot of big numbers were tossed around at the time.

“Facebook had a lot of noise back then,” he said. “It all seems very odd to me, but if you really had the money to get $4 billion, you could find $4 billion worth of shares pre-IPO.”

Through his attorney, Neman declined to comment. Citigroup also declined to comment.

Opening up

Neman opened up his own shop in June 2010 at the age of 28 after stints at First Commerce Bank and Gateway Bank. At one point, he claimed on his website and in regulatory filings that he was a graduate of UC Berkeley, though he later removed that claim.

According to Securities and Exchange Commission charges later filed against him, he began recruiting investors from California, Florida and Texas, largely tapping Persian Jewish communities. Born Shervin Davatgarzadeh, he allegedly told SEC examiners that he changed his last name to Neman, his mother’s family name, because the Neman family was prominent in the Persian Jewish community and the association could help him raise money.

He marketed two types of investments: buying and flipping foreclosed residential properties, and buying and flipping pre-IPO investments in companies about to go public such as General Motors, Facebook, Groupon and LinkedIn.

Drawing the most interest was Facebook. Privately owned shares of the company were a hot commodity on the secondary market in the run-up to the social media network’s public offering. Facebook employees wanting to cash out could do so through well-connected securities brokers, or through online marketplaces such as SecondMarket and SharesPost. Shares reached $44 a share on the secondary exchanges before the IPO, exceeding Facebook’s opening price of $38 a share, which valued the company at $104 billion.

Neman allegedly reached out to a number of firms including Wedbush, Goldman Sachs and Citigroup. But each would have required him to first provide proof of funds, which he was allegedly unable to do.

Multiple meetings

Kevin Cohen, director of trading of private shares group at Wedbush, said in a court declaration that he had several in-person meetings and conversations with Neman beginning in May 2011 to discuss pre-IPO Facebook shares. In August 2011, Wedbush offered him $17 million in Facebook shares, and the next month it offered up to $160 million at a price of $32 per share, but Neman didn’t move forward.

“Although we presented Mr. Neman with numerous opportunities to purchase Facebook shares and held numerous discussions with him about it, Mr. Neman never provided the requisite proof of funds to move the transaction forward. Over time, it became clear that Mr. Neman was either unable or unwilling to proceed with the purchase of Facebook shares,” Cohen’s declaration said. He declined to comment further.

Mulligan did not deal directly with Neman, but said Neman became known in investment circles as someone calling around for Facebook shares but who didn’t close deals or provide proof of funds.

“You had to be a bona fide buyer,” he said. “It may have been a chicken or egg thing where he didn’t have the money so he couldn’t make an offer and the advisers (selling the shares) wouldn’t do anything out of bounds.”

The investments Neman took in were sizable for a fledgling firm but hardly comparable with the numbers he was throwing around. He collected some $7.5 million in less than two years, according to SEC allegations.

The SEC sued him for fraud in April 2012, claiming that he had made only one investment, $66,000 in General Motors’ IPO. Regulators claimed that $5.4 million went toward Ponzi payments of existing investors and $1.6 million to his lavish lifestyle. Expenses included his wedding and honeymoon, his wife’s engagement ring, and Mercedes-Benz and BMW cars. He also made large political and charitable contributions, including $300,000 to the Unity Fund, $100,000 to the Elton John AIDS Foundation and a maximum donation of $71,600 to Barack Obama’s 2012 presidential campaign (the campaign later returned the money).

Neman has denied the charges in court.

A judge froze his assets that same month and prohibited him from committing securities fraud. Despite being publicly sued for fraud, Neman was allegedly still able to rope in new investments.

He allegedly took in an additional $2 million from Robert Whitsitt, a former sports executive in Seattle who has been general manager of the Seattle Supersonics, Portland Trail Blazers and Seattle Seahawks.

Whitsitt claims he had engaged financial consultant John Eger of Santa Monica’s Allen & Associates to help with sports real estate investments. According to Whitsitt’s lawsuit against Eger in federal court, Eger said that an unnamed Saudi family represented by Neman was willing to come on board as investors in a sports real estate fund with Whitsitt. In order to grease the wheels, he was asked to separately invest $2 million in pre-IPO Facebook stock that Neman was ordering through Goldman Sachs, less than 48 hours before the scheduled IPO.

Whitsitt claims in court papers that he did not receive his money back. Eger did not respond to requests for comment.

That episode appeared to trigger criminal charges. Last April, the FBI arrested Neman and he was charged with three counts of wire and mail fraud. The victim in the federal government’s complaint claimed to have lost $2 million on pre-IPO Facebook shares purchased through Neman and was referred to by the initials “R.W.” A spokesman for the U.S. Attorney’s Office in Los Angeles declined to confirm whether the victim was Whitsitt. The SEC’s civil charges are on hold pending the outcome of the trial.

Whitsitt declined comment, citing the upcoming criminal trial.

Big deal

Now Neman claims he had a megadeal in the works all along.

In a Los Angeles Superior Court complaint filed late last month, he detailed exchanges between November 2011 and March 2012 with Citigroup, before the SEC sued him and before Facebook’s IPO.

Neman claims he approached Robert Leonard, Citigroup’s managing director of special equity transactions, about buying $1 billion in pre-IPO Facebook shares on behalf of his client Global Investment Capital, an amount that was later upped to $4 billion. He claims that Feb. 8, 2012, Leonard sent over a letter of intent memorializing an agreement to buy $3.84 billion in Facebook shares at $32 a share. He further claims that he forwarded documented proof of funds to Leonard Feb. 14. But the alleged deal kept changing shape, to $2.1 billion worth of shares at $34.50 a share Feb. 16. Then, in March, Neman said his client was still willing to purchase $4.4 billion in pre-IPO Facebook shares at $36.50. Later that month, Citigroup was added as an underwriter of Facebook’s IPO, creating a conflict of interest and allegedly killing the deal.

Neman has sued for more than $830 million in damages, which includes a 2 percent commission of total value of shares purchased and 20 percent of the profit upon sale of the shares. The complaint does not detail when these post-IPO sales would have occurred, as Facebook’s stock price famously dove in its first weeks after going public.

There are several firms called Global Investment Capital, and it’s unclear to which Neman is referring. A large investment firm in Dubai with the name told the Business Journal that it was not involved in any such deal.

Despite the cited negotiations between Neman and Citigroup, it’s unclear how close a deal actually came to completion and there does not appear to have been any contract.

“The absence of documentation is suspicious and the fact that he’s going to his criminal trial in a couple months is suspicious,” Klein said.

Mulligan added that there are several other red flags. He found it unlikely that Citigroup would risk doing a $4 billion deal with a single buyer and unconvincing that Neman would have been surprised that a major bank like Citigroup would be named underwriter. Furthermore, there would have been other ways to acquire shares if he had willing buyers.

“I’m surprised this guy couldn’t get shares if he really wanted to get them,” he said.