SEC charges two fund managers over misleading Facebook, Twitter investments

One manager, Frank Mazzola, created two funds to buy shares in Facebook and other high profile technology companies, the SEC said today. Mazzola allegedly pocketed more than the 5% percent management fee he ostensibly charged for acquiring Facebook stock and selling the equity to new investors, the SEC said. The hidden charges created a disincentive for Mazzola and his firms, Felix Investments and Facie Libre Management, to negotiate a lower price for fund investors.

Mazzola's firms are also charged with misleading investors about other private companies. For example, the funds lied to one investor about acquiring Zynga shares and also falsely represented Twitter's revenue figures to attract interest, the SEC said.

The other manager, Laurence Alburek, allegedly hid the "significant compensation" his funds earned. Alburek has neither admitted or denied the wrongdoing but agreed to pay back $210,499 and a $100,000 fine. The SEC wants Mazzola to also give back the cash and face penalties.

Meanwhile, SharesPost, a popular Web secondary market, engaged as a securities dealer without registering, the SEC said. SharesPost operated as both a venue and auction platform for shares in pre-IPO companies.

"The newly emerging secondary marketplace for pre-IPO stock presents risk for even savvy investors," says Marc Fagel, director of the SEC's San Francisco office. "Broker-dealer registration helps ensure those who effect securities transactions can be relied upon to understand and faithfully execute their obligations to customers and the markets. SharesPost skirted these important provisions."

SecondMarket, another popular exchange for pre-IPO shares, is a registered broker-dealer.

The online secondary markets have emerged as a popular way to trade shares in recent years after the recession stalled many companies' plans to go public. Consumer interest has grown to a fever pitch ahead of Facebook's IPO. Many newly public social media and Web companies, like Groupon, Pandora and Linkedin, first traded private shares online.

(Published by Forbes - March 14, 2012)