Investment Fund and Investment Advisor Fraud, Misrepresentation and Mismanagement FINRA Arbitration and Litigation Attorney, Russell L. Forkey, Esq.
Securities and Exchange Commission v. Frank Mazzola et al., CV-12-1258 EDL (U.S. District Court for the Northern District of California, filed March 14, 2012)
SEC BRINGS CHARGES IN CONNECTION WITH SECONDARY MARKET TRADING OF PRIVATE COMPANY SHARES
The Securities and Exchange Commission recently charged a New York City area fund manager with misleading investors and pocketing undisclosed commissions in connection with several pooled investment vehicles he operated.
The SEC alleges that Mazzola, who lives in Upper Saddle River, N.J., and his firms Felix Investments, LLC, and Facie Libre Management Associates, LLC, created two funds to buy securities of Facebook and other high profile technology companies. However, Mazzola and his firms engaged in improper self-dealing – earning secret commissions above the 5 percent disclosed in offering materials on the funds’ acquisition of Facebook stock and on re-sales of fund interests to new investors. The hidden charges essentially raised the prices paid by their investors for Facebook stock because it created a disincentive for Mazzola and his firms to negotiate a lower price for fund investors. They also sold Facie Libre fund interests despite knowing the funds lacked ownership of certain Facebook shares.
According to the SEC’s complaint filed in federal court in San Francisco, Mazzola and his firms also made false statements to investors in other funds they created to invest in various pre-IPO companies. For instance, they 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.
The SEC’s lawsuit charges Mazzola, Felix Investments, and Facie Libre Management Associates with violating Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5(b) thereunder. It also charges Mazzola and Facie Libre Management Associates with violating Section 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. The Commission seeks court orders prohibiting them from engaging in securities fraud and requiring them to disgorge their ill-gotten gains and pay financial penalties.
Separately, the Commission initiated a settled administrative proceeding against Laurence Albukerk and his company EB Financial Group LLC, for failing to disclose in their offering materials certain compensation they earned in connection with two Facebook funds they managed. Without admitting or denying the SEC’s findings, Albukerk and EB Financial consented to entry of a SEC order finding that they violated Section 17(a)(2) of the Securities Act and Section 206(4) of the Advisers Act and Rule 206(4)-8 thereunder. Albukerk and EB Financial also agreed to pay disgorgement and prejudgment interest of $210,499 and a penalty of $100,000.
The Commission also initiated a settled administrative proceeding against SharesPost, Inc., an online platform that facilitated certain secondary market transactions, and its CEO, Greg Brogger, for effecting securities transactions without registering as a broker-dealer. SharesPost and Brogger consented to an SEC order finding that SharesPost committed and Brogger caused a violation of Section 15(a) of the Exchange Act of 1934. They agreed to pay penalties of $80,000 and $20,000 respectively.