Regular readers of this newsletter will be quite familiar with some of the swindles and mischief that retail investors can face in the secondaries market, thanks to Allie’s diligent reporting on the subject. And with AI companies now moving towards record-setting IPOs—with valuations in the trillions of dollars—the demand for pre-IPO shares is greater than ever, as is the opportunity for deceit.
This week, the SEC revealed details of a couple of cases involving phantom pre-IPO shares of SpaceX, OpenAI, and other hot startups. Scores of mom-and-pop investors, including some Navy veterans, were among the victims of fund advisors who claimed to be investing in pre-IPO shares of the startups, according to the SEC.
Needless to say, the fund advisors never actually bought or owned shares of any of the companies, the SEC alleges. Instead, as Amanda Gerut reports, the funds were allegedly used for everything from money-losing options trades to shopping sprees at Bloomingdale’s and on Amazon.
In one particularly seedy episode, one of the accused fund advisors allegedly spent $18,000 of fund capital on “personal entertainment” at a strip club. The fund advisor, Owen Meyer, tried to pay a $4,400 bill to the club at 4:41 a.m. using a debit card associated with Meyer Global Partners, but it was declined twice, the SEC claims.
“Just minutes later, Meyer transferred $10,000 from a fund account containing only investor money to the Meyer Global Partners account. He then allegedly paid the club $4,400 at 4:44 a.m. and then another $3,650 at 5:30 a.m. for receipts that listed drinks, ‘entertainment room rental fees,’ and included the name of Meyer’s cocktail server at the club, the SEC claims.”
In the other case, the SEC charged two men with defrauding 35 investors of more than $8.7 million through their firm, Beyond Alpha Ventures. According to the SEC, the two partners pitched investors on a trading fund with 153% net returns plus pre-IPO stakes in crypto exchange Kraken and AI software firm SandboxAQ.
“The SEC claims the trading fund lost money in 13 of 14 months, and less than half the nearly $6 million raised for pre-IPO deals went into them. Much of the rest went into options trading that was later lost, the complaint states. The two allegedly sent fake statements to investors, including one … ‘hand-delivered’ to a Navy veteran couple saying their $750,000 investment had grown to $4.1 million.” One of the partners, reached by Fortune, called the allegations “completely false.” The other partner, as well as Meyer, did not respond to requests for comment.
If nothing else, the cases are a reminder that even as we fret about the novel risks of AI technology, the world is still full of old-fashioned dangers. Read Amanda’s full story here.
Alexei Oreskovic
alexei.oreskovic@fortune.com
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This story was originally featured on Fortune.com