Two private investment fund managers who invested in shares of privately held high tech companies, like Facebook and other Silicon Valley firms, were charged by the SEC with misleading investors and pocketing undisclosed fees and commissions.  All told, the managers collectively raised over $70 million from investors.  The charges stem from the SEC’s year-long investigation of the fast-growing business of trading pre-IPO shares on the secondary market.

"Fund managers must fully disclose their compensation and material conflicts of interest. Investors deserve better than the kind of undisclosed self-dealing present in these cases." -- Robert Kaplan, Co-Chief of SEC Enforcement's Asset Management Unit.

SEC v. Frank Mazzola, Felix Investments LLC, Facie Libre Mgmt Associates LLC. Mazzola, who lives in Upper Saddle River, NJ, and his firms created 2 funds to buy securities of Facebook and other high profile technology companies.  However, they allegedly crossed the line by engaging in improper self-dealing - earning secret commissions above the 5% 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. In its complaint filed in federal court in San Francisco, the SEC also charged Mazzola and his firms with making 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 seeks to disgorge Mazzola, Felix Investments, and Facie Libre of their ill-gotten gains and collect financial penalties. In the Matter of EB Financial Group LLC and Laurence Albukerk. SF-based Laurence Albukerk and his firm allegedly hid from investors significant compensation earned in connection with 2 Facebook funds they managed.  In written offering materials for the funds, Albukerk noted that investors were charged only a 5% fee for an initial investment and a 5% fee when the shares were distributed to fund investors upon a Facebook IPO. However, Albukerk obtained additional compensation essentially front-running purchases by the EB Funds.  Shares were first purchased by an entity controlled by his wife, who then sold the shares at a marked-up price to the EB Funds.  Albukerk further earned a brokerage fee on the acquisition of Facebook shares from the original stockholders.  As a result of the fee and mark-up, investors in Albukerk’s 2 Facebook funds ultimately paid significantly more than the fees disclosed in the offering materials. Albukerk and EB Financial agreed to pay over $310,000 in disgorgement, prejudgment interest and penalties to settle the SEC charges. For further details, go to:  [SEC PR 12-43, 3/14/12] and [Litigation Release 22292]. Re: Mazzola:  [SEC Complaint] and [Litigation Release No. 22292]. Re:  Albukerk, EB Fincl:  [Administrative Proceeding].