SEC Charges Two Secondaries Fund Managers Over Facebook Trades And Separately SharesPost

(Reuters) – Securities regulators took enforcement action against an online trading platform and two private funds offering Facebook shares on Wednesday, the first action in a year-long probe into the lightly regulated world of private company-share trading.

The Securities and Exchange Commission charged SharesPost, which matches buyers and sellers of private shares, and its CEO Greg Brogger with failing to register as a broker-dealer before offering the securities.

The SEC also brought charges against two private funds and their managers for allegedly misleading investors about hidden fees in Facebook stock offerings.

In a lawsuit filed in a federal court in San Francisco, the SEC alleges that Frank Mazzola and his firms, Felix Investments and Facie Libre Management Associates, engaged in improper self-dealing and earned secret commissions.

The SEC also separately filed similar charges in the agency’s administrative court against Laurence Albukerk, and his firm EB Financial Group. Albukerk and the company settled the allegations without admitting or denying them, and agreed to pay a $100,000 fine and will return another $210,499 in allegedly illegal profits.

SharesPost and its CEO Greg Brogger also agreed to settle the SEC charges without admitting or denying the allegations. The company will pay $80,000 in penalties while Brogger will pay $20,000.

SharesPost, which eventually registered as a broker-dealer late last year, issued a statement on Wednesday saying it had complied with all of the SEC’s requests during the probe, and that no customer has ever complained about its practices.

The company said it has “concluded that it better serves its client by entering into this administrative settlement with the SEC, 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.”

Attorneys for the other defendants did not immediately respond to requests for comment.

The charges against Mazzola and his firms allege he earned secret commissions above the 5% disclosed in his fund offerings. The hidden charges increased what investors paid for Facebook stock, according to an SEC press release. HeĀ  also sold Facie Libre fund interests knowing the fund didn’t own certain Facebook shares, the release says.

According to the complaint, Mazzola and his firms also misled investors about other funds they formed to invest in other pre-IPO companies, including Zynga and Twitter. The suit seeks to have Mazzola, Felix Investments, and Facie Libre to pay penalties and return profits.

The complaint against Albukerk says he charged investors a mark up beyond the fees he disclosed – 5% fee for an initial investment and a 5% fee when the shares were distributed upon a Facebook IPO – using an entity controlled by his wife to purchase the Facebook stock.

(Additional reporting was conducted by peHUB reporter Mark Boslet.)