Private Fund Adviser Found to Have Mislead Investors in Connection with Fund Purchases of Pre-IPO Stock

March 14, 2014

Frank Mazzola, Felix Investments, LLC, a brokerage firm, and Felix Advisors, LLC, an investment adviser, settled fraud charges that were brought by the SEC in a matter involving the purchase shares of Facebook and other technology companies prior to their initial public offerings.

The SEC alleges that Mazzola and his firms Felix Investments and Facie Libre Management Associates, LLC, created two funds to buy securities of Facebook and other technology companies. However, the SEC found that Mazzola and his firms engaged in improper self-dealing by 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.

According to the SEC, 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.

Click here to access the enforcement action.