SEC cracks down on SharesPost, Felix Investments

Pre-IPO trading in Facebook brings out some dirty dealings and administrative oversights

With Facebook set to go public, there is what could only be described as a frenzy of people trying to get their hands on the stock before it makes its public debut. Unfortunately, and perhaps not surprisingly, there were at least a few investment firms ready to take advantage of people desperate to get their hands on it.

The Securities and Exchange Commission brought charges Wednesday against SharesPost and CEO Greg Brogger for not registering as a broker-dealer but still engaging in securities transactions.

“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," according to the SEC filing. "SharesPost held itself out to the public as an online service to help match buyers and sellers of pre-IPO stock and allowed registered representatives of other broker-dealers to hold themselves out as SharesPost employees and earn commissions on transactions they facilitated through the SharesPost platform.”

SharesPost and Brogger agreed to settle and pay penalties, without denying or admitting to guilty to the charges. SharesPost will pay $80,000 and Brogger will pay $20,000.

A SharesPost spokesperson told VatorNews that the company was neither confirming or denying the SEC's charges, but “concluded that it better serves its client by entering into this administrative settlement with the SEC, and believes its time, energy and resources are best spent continuing to build what has become the industry’s largest, most active platform during a crucial phase of its growth.”

Separately, the SEC is charging Frank Mazzola and his two firms Felix Investments and Facie Libre Management Associates for engaging in "improper self-dealing -- earning secret commissions above the 5 percent disclosed in offering materials on the funds’ acquisition of Facebook stock and on re-sales of fund interests to new investors."

Mazzola is also accused of lying to investors about shares his firms said they had bought in Zynga and Twitter.

“The hidden charges essentially raised the prices paid by their investors for Facebook stock because it created a disincentive for Mazzola and his firms to negotiate a lower price for fund investors," according to the SEC filing. "They also sold Facie Libre fund interests despite knowing the funds lacked ownership of certain Facebook shares.”

Mazzola is fighting the charges.

Larry Albukerk, and his firm EB Financial Group, were charged in an administrative proceeding, including pocketing secret commissions, and not providing full disclosures to investors. 

"Albukerk obtained additional compensation by using an entity controlled by his wife to purchase the Facebook stock and then buying interests in that entity for the EB Funds while charging investors a mark-up. Albukerk also earned a brokerage fee on the acquisition of Facebook shares from the original stockholders. 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."

Without admitting guilt, Albukerk has already agreed to “disgorgement and prejudgment interest of $210,499 and a penalty of $100,000.”

The charges are the culmination of a investigation that has been going on for a year by the SEC into the trading of pre-IPO shares.

“While we applaud innovation in the capital markets, new platforms and products must obey the rules and ensure the basic fairness and disclosure that are the hallmarks of sound financial regulation,” said Robert Khuzami, Director of the SEC's Division of Enforcement.

You can read the SEC complaint here.

(Image source: Digitaltrends.com)