General Solicitation and the Importance of Good Disclosure

Yesterday the WSJ Venture Capital Dispatch reported that Felix Investments, LLC, is offering investors the opportunity to buy pre-IPO shares in clean-tech company Bloom Energy Corporation through one of Felix’s pooled investment funds.

You might recall the name Felix Investments from this past March, when the Securities and Exchange Commission announced that it had filed a complaint against Felix, Facie Libre Management Associates, LLC and principal Frank Mazzola, in connection with the operation of certain pooled investment funds that were used acquire pre-IPO shares of companies like Facebook and Zyanga, among others.

The allegations in the Commission’s complaint relate to issues of self-dealing and material misstatements and omissions about the investments themselves (not the form thereof) and the matter is still pending, so of course the parties are presumed innocent until proven otherwise.

I just went back and reread the complaint this morning. What a difference a couple of months and a liquidity event can make. Among other things, the Commission is alleging that Mazzola created the impression that Felix Investments acquired Facebook shares at $66 per share, when in fact they had been acquired at even higher prices; FB opened at $20.95 this morning.

What’s more interesting though are some of the communications from Mazzola and Felix to potential investors, which are necessarily without full context and for the benefit of the arguments that Commission is making in the complaint, but still interesting nonetheless. I wonder if we’ll end up seeing more of these types of actions once the ban on general solicitation and general advertising is lifted and funds really begin advertising.

It’s certainly a good reminder for anyone thinking about using general solicitation and general advertising of the importance of balancing marketing and advertising with good disclosure and compliance practices.

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