Friday, September 29, 2023
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Firms to Pay for Pre-IPO Facebook Investments

SAN FRANCISCO (CN) - An investment fund manager and his firms must repay undisclosed fees and commissions they allegedly pocketed while acquiring shares of Facebook and other web-based companies, a federal judge ruled.

The Securities and Exchange Commission had claimed in a 2012 complaint that Frank Mazzola and his firms, Felix Investments LLC and Facie Libre Management Associates, misled investors of Facebook, Twitter and Zynga.

Before Facebook became publicly traded, Mazzola allegedly created several investment funds to pool money in the company in late 2009.

By 2011, Felix raised $56 million for funds that held stock in Facebook and Twitter, $41 million of which was invested into funds to hold Facebook stock, the SEC said.

While trading pre-IPO shares is not illegal, traders are required to disclose their compensation and conflicts of interests to their investors.

The SEC said Mazzola and his firms "engaged 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."

"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," the commission said in a statement. "They also sold Facie Libre fund interests despite knowing the funds lacked ownership of certain Facebook shares."

Mazzola also did not disclose to investors that Facebook blocked several proposed share transfers, according to the complaint.

The commission sought a court order enjoining Mazzola and the companies from violating securities laws and to pay back the money they gained illegally.

With the case headed to trial, Mazzola and the firms offered to settle with the SEC in January.

Mazzola and Felix Investments did not admit or deny any of the SEC's allegations and waived the findings of facts and conclusions of law in the case.

U.S. District Judge Maxine M. Chesney signed a $500,000 judgment Monday against Mazzola and Felix Investments. The amount covers both disgorgement of ill-gotten gains and civil penalties.

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