SAN FRANCISCO (CN) – The SEC claims two managers of investment funds established solely to acquire shares of Facebook and other Silicon Valley firms pocketed undisclosed fees and commissions while raising $70 million from investors.
The SEC sued Frank Mazzola, Felix Investments LLC and Facie Librea Management Associates, in San Francisco Federal Court.
Separately, in Washington, D.C., the SEC obtained a cease-and-desist order and sanctions against Sharespost Inc. and its CEO Greg B. Brogger.
The SEC said both cases stemmed from its yearlong investigation of “the fast-growing business of trading pre-IPO shares on the secondary market.”
That’s not illegal, but traders must disclose their compensation and conflicts of interest, the SEC said in a statement about both cases.
The SEC said Mazzola, 44, of Upper Saddle River, N.J., 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. They also sold Facie Libre fund interests despite knowing the funds lacked ownership of certain Facebook shares.”
Defendant Felix investments is a registered broker-dealer in New York City which is 70 percent owned by Mazzola’s uncle, (nonparty) John Bivona, according to the SEC complaint. Mazzola owned 10 percent of it.
As for SharesPost and its CEO Greg Brogger, of Park City, Utah, the SEC says “the online platform [defendants] facilitated securities transactions without registering with the SEC as a broker-dealer.”
“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,” the SEC said in the statement.
It said Brogger and his companies admitted they violated securities regulations, and agreed to pay a total penalty of $100,000.