Local swept up in SEC actions
March 16, 2012
The Securities Exchange Commission took administrative action against SharesPost an online marketplace company and its CEO, Park City local Greg Brogger. The SEC brought penalties this week totaling $100,000 against the company and Brogger for assisting in securities transactions without registering SharesPost with the SEC as a broker-dealer.
SharesPost facilitates pre-Initial Public Offers stock sales by matching buyers and sellers. It was one of four companies dealing in pre-IPO sales the SEC targeted in its year-long investigation. Alongside SharesPost, investment funds companies such as Felix Investments, Facie Libre Management and EB Financial were part of the SEC probe.
The message the SEC was sending was clear: no more stock trading without oversight of companies that haven’t gone public yet.
Companies like SharesPost came onto the scene in 2009, filling a hole in the market as interest among investors in tech companies such as Facebook started growing. SharesPost and SecondMarket, a larger competitor not involved in the SEC actions, began experimenting with eBay-like exchanges connecting sellers with potential buyers.
"The newly emerging secondary marketplace for pre-IPO stock presents risk for even savvy investors," said Marc Fagel, director of the SEC’s San Francisco Regional Office, in a press release. "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."
Previous policy on private exchanges had less regulation than public exchanges such as Nasdaq and the New York Stock Exchange. The average stock buyer would not be able to purchase stock in a private exchange, only accredited investors with a net worth of at least $1 million participate.
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"Since being founded in 2009, SharesPost’s business model evolved to become more actively involved in helping its customers with their private market transactions," read a SharesPost press release. "To accommodate these changes, SharesPost integrated third party broker dealers and their representatives into its platform. All transactions initiated on the platform during this period were facilitated by registered representatives of broker-dealers in good standing."
According to the SEC, SharesPost held itself out to the public as an online service to help match buyers and sellers of pre-IPO stock and allowed registered representatives of other broker-dealers to hold themselves out as SharesPost employees and earn commissions on transactions they facilitated through the SharesPost platform.
Discussions with the SEC began in December 2010, during an industry-wide inquiry into private capital markets. As part of the settlement, SharesPost and Brogger will pay the $100,000 in fines but refused to admit to or deny the SEC findings.