Several Firms Accused of Facebook Securities Fraud

by Wall Street Fraud on March 19, 2012

Investment fraud lawsuitMore investors are seeking to buy private shares in popular technology companies like Twitter and Facebook before their initial public offerings. While these shares can be extremely valuable once the company goes public, the secondary market for these shares is a risky place for investors.

The growth of this market and the resulting securities fraud has prompted both the Financial Industry Regulatory and the Securities and Exchange Commission to step up enforcement. The SEC has reportedly been investigating the pre-IPO market for over a year.

Last week, the SEC announced its first round of securities fraud charges in connection with that investigation. It charged two managers of private investment funds established solely to acquire the shares of Facebook and other tech firms with misleading investors and pocketing undisclosed fees and commissions.

“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,” said Robert Kaplan, Co-Chief of the SEC Enforcement Division’s Asset Management Unit.

The SEC alleges that Frank Mazzola, of Upper Saddle River, N.J., and his firms 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 undisclosed 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.

As detailed in the SEC’s complaint, 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 Message for Investors

Because they lack the type of public disclosures required for public stocks, pre-IPO stocks are high-risk even for experienced investors.

If you have been the victim of broker fraud or negligence, we may be able to help you recover your losses. Contact our securities fraud attorneys today at 215-839-3953 for a free consultation.

At Wall Street Fraud, we are dedicated to offering assistance to those who have been hurt by improper corporate or investment practices.

If you have been the victim of stock brokerage fraud, securities fraud, mutual fund fraud, stockbroker fraud, annuities fraud, or any other type of investment fraud or negligence, please contact us today for a free case evaluation. Our talented and aggressive legal and professional staff is eager to help you recover your losses.

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