US regulators crack down on private share traders
US securities regulators, following a year-long investigation, announced settlements Wednesday with two companies trading in private shares of high-flying technology firms such as Facebook. The US Securities and Exchange Commission (SEC) also said it was pursuing charges against the manager of two other private investment funds dealing in shares of Silicon Valley companies which have yet to go public. The SEC said SharesPost, an online trading platform which matches buyers and sellers of private shares, and its president, Greg Brogger, had arranged securities transactions without registering with the SEC as a broker-dealer. The SEC said it had reached an agreement with SharesPost and Brogger under which they agreed to pay penalties of $80,000 and $20,000 respectively and to register as a broker-dealer. Separately, Laurence Albukerk of the EB Financial Group was accused of misleading investors and pocketing undisclosed fees and commissions. "Investors in Albukerk's two Facebook funds ultimately paid significantly more than the fees disclosed in the offering materials," the SEC said. It said Albukerk and EB Financial, without admitting or denying the SEC's findings, had agreed to pay $310,499, including a penalty of $100,000. Frank Mazzola of Felix Investments and Facie Libre Management Associates face similar charges and the case against him and his two funds continues, the SEC said. The SEC alleged that Mazzola and his firms had earned "secret commissions" above the five percent disclosed in offering materials on their acquisition of Facebook stock. In addition, they "misled one investor into believing a Felix fund had successfully acquired stock of Zynga" and "made false representations about Twitter's revenue to attract investors to their Twitter fund," the SEC said. The SEC alleged the two fund managers raised more than $70 million from investors. The SEC charges resulted from a year-long investigation into the growing business of trading pre-initial public offering shares on the secondary market. "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," Robert Khuzami, director of the SEC's Division of Enforcement, said in a statement. "Fund managers must fully disclose their compensation and material conflicts of interest," said Robert Kaplan, co-chief of the SEC Enforcement Division's Asset Management Unit. "Investors deserve better than the kind of undisclosed self-dealing present in these cases," Kaplan said. Marc Fagel, director of the SEC's San Francisco Regional Office, said the "newly emerging secondary marketplace for pre-IPO stock presents risk for even savvy investors. "Broker-dealer registration helps ensure those who effect securities transactions can be relied upon to understand and faithfully execute their obligations to customers and the markets," Fagel said. "SharesPost skirted these important provisions." In a statement, SharesPost, which was founded in 2009, said it had been in discussions with the SEC since December 2010 and had conduced an "exhaustive review" of all of its practices and transactions. "There has yet to be a single customer complaint," SharesPost said.
