The U.S. Securities and Exchange Commission on Monday brought settled charges of fraud against Adit Ventures Management, its founder and three partners in connection with pre-IPO investments in companies including Klarna (KLAR.N) and SpaceX (SPCX.O), the agency said in a release.
The SEC alleged that the investment adviser had used "false claims and promises" to solicit investments in Adit-managed funds and used client money for the firm's own benefit, including by taking unsecured loans on favorable terms without disclosure to clients.
Adit Ventures, without admitting the allegations, agreed to a consent order which would include payments of disgorgement and a civil penalty, the SEC said. The consent order requires approval by a federal judge. Adit Ventures CIO and founder Eric Munson denied the charges in a statement.
Demand for shares in private markets, which are not subject to the same scrutiny as public exchanges, is increasing as companies grow bigger and more prominent before they eventually list. Investors bought what they believed to be shares of SpaceX through unusually complex arrangements before its blockbuster IPO this year, leaving some unsure of what exactly they owned.
The SEC's complaint said that Munson had solicited an investor by falsely claiming that a fund owned shares of stock of a private, pre-IPO company. The agency also alleged that the defendants bought pre-IPO shares and then caused client funds to buy those shares at a higher price, misrepresenting their true cost.
In his statement, Munson said, “Let me be unequivocal: I have delivered for my investors, and I reject these allegations completely.” He added: "I am settling this matter because fighting it will not result in any benefit for me or for the investors I have spent my professional life serving."
The SEC declined to comment further.
Last December, a New York investment manager was indicted for allegedly promising clients exposure to nonpublic shares of drone maker Anduril Industries, raising millions of dollars despite having no access to the company’s stock. Three sales executives were arrested the previous February on charges brought by the Eastern District of New York relating to an alleged pre-IPO fraud scheme.
Artificial-intelligence company Anthropic said earlier this year it was aware of investment funds that claim to offer indirect access to its stock, and wanted "to help protect individuals from potentially invalid transfers or investment fraud." The startup said any sale or transfer of its stock that had not been approved by its board was void, and any offer to invest in its past or future financing rounds through special purpose vehicles was prohibited.
