SEC Presses Investment Firms to Prove They Have Access to Shares in Hot Startups
The Wall Street Journal reported recently on a fund that touted exposure to SpaceX but later told investors the shares were sold before its IPO
- The SEC has increased examinations of firms behind special purpose vehicles that claim to offer exposure to private company investments.
- SEC examiners are asking registered investment advisers for proof that their SPVs own or have exposure to the claimed private company shares.
- The regulatory scrutiny follows rising investor complaints and a marketing blitz ahead of SpaceX’s and Anthropic’s planned IPOs.
The Securities and Exchange Commission has stepped up its examinations of firms behind so-called special purpose vehicles that purport to offer exposure to private company investments.
SEC examiners have been asking registered investment advisers for proof that their SPVs own or have exposure to the shares in private companies that they claim to, according to people familiar with the matter.
Regulators decided to take a closer look following increased investor complaints and a marketing blitz by such funds ahead of SpaceX’s SPCX 1.55%increase; up pointing triangle blockbuster initial public offering and Anthropic’s planned IPO, some of the people said.
The details
The SEC’s examinations so far have typically involved document requests and some include an in-person component, one of the people said. They can take anywhere from several weeks to a year.
SPVs hold shares in private companies either directly or indirectly, by investing themselves or in other funds with stakes. They proliferated in recent years as companies stayed private for longer and individual investors wanted to profit from their ballooning valuations.
SPVs operate under few regulations, and the SEC has the authority to check the funds that are held by registered investment advisers. Some SPVs are offered by firms that are technically outside of the SEC’s purview, though if there is an issue of fraud, the SEC has authority to investigate and take action.
The context
Cracks in the SPV universe are already appearing. The Wall Street Journal recently reported on an SPV fund that touted pre-IPO exposure to SpaceX but later told investors the shares were sold before trading in the rocket company began, limiting investors’ expected gains.
Another investment firm that sold stakes in pre-IPO companies filed for bankruptcy protection last year, citing investigations into its business and questions about what its customers even owned.
Some large private companies are also worried about possible bad actors in the SPV world. Anthropic in May updated a notice on its website saying it wouldn’t recognize sales of company stock that haven’t been approved by its board and called out several online platforms that resell interests both directly and indirectly through SPVs.