The U.S. Securities and Exchange Commission today filed charges against two managers of private funds that had raised more than $70 million to acquire and trade pre-IPO shares of Facebook and other tech companies with misleading investors and charging undisclosed fees. It also brought charges against SharesPost, saying it had engaged in securities transactions without being registered as a broker-dealer.
The charges capped a yearlong effort to investigate the workings of so-called secondary markets, where firms trade privately owned pre-IPO shares and options of companies like Facebook that have not yet completed initial public offerings.
In the SharesPost matter, the SEC brought an administrative proceeding against the firm and its CEO Greg Brogger of Park City, Utah. “SharesPost engaged in a series of activities that constituted the business of effecting securities transactions and thus were required to register as a broker-dealer,” the commission said in a statement announcing the action. SharesPost and Brogger agreed to pay fines of $80,000 and $20,000 respectively. SharesPost has since acquired the proper broker-dealer licenses. See the consent decree here.
In another case, the SEC brought an administrative proceeding against EB Financial Group and its founder Laurence Albukerk of San Francisco. The commission says that Albukerk and his firm failed to disclose compensation earned from two funds consisting of Facebook shares. Having told investors he charged only 5 percent beyond an initial investment and 5 percent upon distribution, he charged a fee when buying shares in an entity controlled by his wife that had bought some Facebook shares and then charged his own investors a mark-up that wasn’t disclosed. “As a result of the fee and mark-up, investors in Albukerk’s two Facebook funds ultimately paid significantly more than the fees disclosed in the offering materials,” the commission said.
Albukerk and EB Financial agreed to pay disgorgement fees of of $210,499 and a penalty of $100,000. Albukerk was not required to admit wrongdoing. See the consent order here.
The lawsuit, (complaint embedded below) is against Frank Mazzola of New Jersey, and seeks a court order prohibiting him and his firms from engaging in fraudulent activity and the disgorgement of any funds. Through his firms Felix Investments and Facie Libre Management Associations, the SEC says he engaged in what it calls “improper self-dealing,” including earning commissions on the sale of Facebook shares that were above the 5 percent disclosed in marketing materials. The hidden charges effectively meant that investors paid more for their shares.
The complaint also says that Mazzola’s firms misled investors, telling them in one case that it had acquired shares of social gaming concern Zynga when it had not, and in another instance, misstating the number of investors participating in its Twitter fund.
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