DOW JONES NEWSWIRES
The Securities and Exchange Commission on Wednesday detailed charges against two investment funds created to buy up shares of Facebook Inc. and other companies ahead of their initial public offerings, part of a widening investigation into the practice.
The agency charged Frank Mazzola, as well as Felix Investments LLC and Facie Libre Management Associates LLC, with engaging in improper self-dealing that earned the funds commissions above the 5% disclosed in their offering materials. The agency said the higher commissions essentially created a disincentive for Mazzola and the two funds he created to negotiate a lower price for investors.
Mazzola has vowed in a regulatory filing to "aggressively defend himself." An attorney listed as representing Mazzola and the funds wasn't immediately available to comment.
The SEC provided details of the accusations, which were initially reported earlier this week, as part of its growing probe into the fast-growing business of trading private-company shares before their companies go public. Such trades have soared in volume on anticipation that the share prices of Facebook, Twitter Inc. and other popular Internet firms will jump after any initial public offerings.
"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," SEC enforcement director Robert Khuzami said.
The SEC also charged SharesPost, an online service that creates a secondary market for pre-IPO stock, with failing to register with the agency as a broker-dealer. SharesPost agreed to pay a $80,000 fee to settle the matter without confirming or denying the allegations.
SharesPost said in a statement it is prohibited from making certain comments under the terms of the settlement, though the firm said it has cooperated with the SEC.
"Since being founded in 2009, SharesPost's business model evolved to become more actively involved in helping its customers with their private market transactions," the company said. "To accommodate these changes, SharesPost integrated third party broker dealers and their representatives into its platform. All transactions initiated on the platform during this period were facilitated by a registered representatives of broker-dealers in good standing."
The agency separately charged Larry Albukerk and his firm EB Exchange Funds with failing to disclose certain fees tied to the funds they managed. Albukerk and the fund agreed to pay $210,499 in disgorgement and prejudgment interest and a $100,000 penalty.
A lawyer listed as representing Albukerk wasn't immediately available for comment.
-By Drew FitzGerald, Dow Jones Newswires; 212-416-2909; Andrew.FitzGerald@dowjones.com
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