An online service company that matches buyers and sellers of pre-IPO stock was charged by the SEC with engaging in securities transactions without registering as a broker-dealer.  The charges stem from the SEC’s yearlong investigation of the fast-growing business of trading pre-IPO shares on the secondary market.

"While we applaud innovation in the capital markets, new platforms and products must obey the rules and ensure the basic fairness and disclosure that are the hallmarks of sound financial regulation." -- Robert Khuzami, SEC Enforcement Director.

SEC Findings and Allegations. SharesPost and CEO Greg Brogger of Park City, UT, operated an online platform that facilitated privately-held securities transactions in the secondary market.  SharePost was not registered with the SEC as a broker-dealer, but should have been, because it engaged in a series of activities that constituted the business of effecting securities transactions. SharesPost held itself out to the public as an online service to help match buyers and sellers of pre-IPO stock and allowed registered reps of broker-dealers to hold themselves out as SharesPost employees and earn commissions on transactions they facilitated through the SharesPost platform.  SharesPost and affiliated broker-dealers also created a commission pool that was distributed by an executive to employees who were reps of these broker-dealers. The company also collected and published on its website 3rd-party information concerning issuers’ financial metrics, SharesPost-funded research reports, and a SharesPost-devised valuation index.  Additionally, the SharesPost platform was used to create an auction process for interests in funds managed by a SharesPost affiliate and designed to buy stock in pre-IPO companies.

"The newly emerging secondary marketplace for pre-IPO stock presents risk for even savvy investors.  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." -- Marc Fagel, Director of SEC’s SF Regional Office.

Settlement. 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.  Subsequent to the SEC’s investigation, SharesPost acquired a broker-dealer and its membership agreement was approved by FINRA. For further details, go to:  [SEC PR 12-43, 3/14/12] and [Administrative Proceeding 34-66594].