U.S. regulators filed civil charges against two managers of tech-focused private equity funds, for misleading investors.
Laurence Albukerk and Frank Mazzola are accused of deceiving investors and failing to disclose fees—the charges stem from the SEC’s yearlong investigation of the fast-growing business of trading pre-IPO shares on the secondary market.
A settlement was reached between the SEC and Albukerk, as well as his firm EB Financial Group.
The SEC found that he and his firm violated Section 17of The Securities Act of 1933 and Section 206 of The Investment Advisers Act of 1940. Albukerk and EB Financial have agreed to pay disgorgement and prejudgment interest of $210,499 and a penalty of $100,000.
In a statement, EB Financial said it “believes this settlement with the SEC is in the firm’s best interests and we are pleased to put this matter behind us.”
Charges are still pending against Mazzola, and his firms Felix Investments and Facie Libre Management Associates.
According to the SEC’s complaint filed in federal court in San Francisco, Mazzola and his firms made false statements to investors in funds they created to invest in various pre-IPO companies.
For instance, he misled one investor into believing a Felix fund had successfully acquired stock of Zynga. They also made false representations about Twitter’s revenue to attract investors to their Twitter fund.
Mazzola and his firms set up two funds to buy shares of Facebook and other prominent technology companies and then earned secret commissions on buying and selling the stock that exceeded the 5% level disclosed in offering materials, according to the SEC.
The hidden charges effectively raised the prices paid by investors for Facebook shares because Mazzola and the firms didn’t have an incentive to negotiate a lower price for investors.
The SEC is seeking unspecified fines and restitution from Mazzola and his two funds.
Together, the two managers raised more than $70 million from investors for substantial compensation gained from their scams and from managing two Facebook funds.
“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 SEC enforcement director Robert Khuzami in a statement.
Facebook shares have represented a large proportion of the booming private-shares market—the eight-year-old social network plans to go public this spring, in an initial public offering of stock that analysts believe could give it a market value higher that that of Yahoo, AOL and Hewlett Packard Co. combined.
The SEC has also announced plans to settle charges with SharesPost, an online exchange for trading stock in companies before they go public, and it’s CEO Greg Brogger.
In this case, the agency reported that SharesPost failed to register as a securities brokerage.
SharesPost agreed to pay an $80,000 fine and Brogger is paying a $20,000 fine, although the company neither admitted nor denied the SEC’s allegations.
Early last year, following the SEC’s investigation, SharesPost acquired a brokerage firm and its registration was approved by the SEC and securities industry regulators.
SharesPost said in a statement Wednesday it concluded “that it better serves its clients by entering into this (settlement), 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.”