SEC Goes After Venture Capital B/D Over Sale of Facebook Shares

The Securities and Exchange Commission has filed charges against New York-based venture capital broker/dealer Felix Investments and the firm’s founder Frank Mazzola.

The Securities and Exchange Commission has filed charges against New York-based venture capital broker/dealer Felix Investments and the firm’s founder Frank Mazzola. The agency alleges that Mazzola sold various pre-IPO shares in the secondary market, including Facebook, but mislead investors about how much commission he was earning, participated in undisclosed self-dealing, lied about the amount of stock the funds actually held and misstated material facts about the companies to attract potential investors.

Mazzola did not return a call by press time, but in a filing with regulators claimed he “believes that he acted appropriately at all times in his sales activities in 2010. He is currently preparing a Wells submission to the staff in which he will aggressively defend himself in this matter.”

Mazzola’s funds, FLA I and FLA II, were created in November 2009 for the purpose of pooling investor money to invest in Facebook shares. The SEC complaint alleges Mazzola sold the pre-IPO tech stocks through Felix as well as through Facie Libre Management Associates, his other firm. He also allegedly mislead an investor into thinking his firm had acquired stock in Zynga, the much hyped creator of social media games, as well as misrepresented Twitter’s revenue, the SEC says.

Prior to launching his own firm, Mazzola was a senior managing director and sales manager at Advanced Equities from May 2006 to September 2009. The founders of that firm are also under investigation by the SEC related to a private offering from 2009.

“Fund managers must fully disclose their compensation and material conflicts of interest,” said Robert Kaplan, co-chief of the SEC Enforcement Division’s Asset Management Unit. “Investors deserve better than the kind of undisclosed self-dealing present in these cases.”

Mazzola’s charges were part of a larger SEC investigation into trading pre-IPO shares on the secondary market.

The SEC launched administrative proceedings against Laurence Albukerk and his management firm EB Financial Group as well as SharesPost, an online platform. According to SEC claims, Albukerk also hid his compensation in connection with two Facebook funds he managed. He settled with the SEC for $210,499 and a penalty of $100,000. The SEC claims SharesPost was acting as a broker/dealer, carrying out securities transactions and allowing sellers to earn a commission, without being registered with the SEC as a b/d. The company also settled for $100,000.

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