Earlier this month, the Wall St. Journal published a piece in which author Dennis Berman created an account at private stock market SharesPost as a test of the company’s accreditation policies. Berman states in his story that the falsification of accreditation info—of all things, under the guise of being his own grandmother—was an attempt to illustrate private trading markets’ difficulty in identifying faked data. However, SharesPost CEO Dave Weir sent the following e-mail to SharesPost users, which was shared with peHUB.
Dear SharesPost Member,
On Tuesday of this week, a columnist from the Wall Street Journal named Dennis Berman published an article that badly misrepresented our company’s policies and procedures and was based on questionable journalistic ethics. His story was based on results he contrived by submitting false information as part of our Accredited Investor vetting process. He defended his actions by saying that he is in “the business of truth telling.” Unfortunately, though, his article omits large portions of the truth.
The fact is that Mr. Berman’s “test” confirmed that our qualification system works. Our broker and electronic systems detected his fraud and barred him from our platform within six hours of submitting his fraudulent information and long before he would have been able to execute trades. Somehow that fact was treated as a mere footnote to the story, leaving readers largely misinformed and our company unfairly maligned.
Other facts about our compliance system that were left out of the story:
-Mr. Berman failed to mention that his fraud only enabled him to view information on our site. Had he attempted to transact, he would have been required to undergo a second level of compliance review and direct dialogue with one of SharesPost’s FINRA registered brokers;
-Had he actually entered into agreements with a seller, those agreements would have required him to make multiple contractual representations to the seller, the company and SharesPost that he had provided accurate information and was in fact an Accredited Investor;
-Had he actually entered into a contract to purchase shares, the transaction would have been processed by U.S. Bank, a third party escrow agent, which first verifies buyers’ and sellers’ identities by collecting all the documents required under the Patriot Act and Anti-Money Laundering regulations.
SharesPost has invested heavily in building its marketplace and has established processes and procedures that meet and often exceed the highest standards of market practice. For the sake of some glib one-liners and a pre-determined “gotcha” story that he was determined to write, Mr. Berman lied about who he was and ignored and embellished the facts to suit his story line. We think the Wall Street Journal can and should do better.