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SEC Charges Broker with Making False Sales of Facebook, Twitter Shares

Many investors hope to strike it big by investing in a hot initial public offering (IPO). But high demand for an IPO can also open the door for unscrupulous brokers to take advantage of investors. Recently the U.S. Securities and Exchange Commission filed a civil lawsuit against a California stockbroker accused of falsely promising to help investors secure pre-IPO shares of social media giants Facebook and Twitter.

SEC v. Argyropoulos

Facebook held its IPO in March 2012, selling 421 million shares at $38 apiece. Twitter’s IPO took place more than a year later, in November 2013, ending its first day of trading at about $45 per share. The Facebook IPO was the largest ever for an Internet-based company.

According to the SEC’s complaint, beginning in late 2010 a Santa Barbara, California broker named Efstratios Argyropoulos, acting through his one-man company Prima Capital Group, Inc., solicited investors via e-mail to purchase Facebook shares prior to the March 2012 IPO. He promised to purchase shares from existing Facebook employees and investors and resell them to investors once the company went public. The SEC said the email solicitations yielded nearly $1.3 million from 53 investors.

In fact, the SEC said Prima did invest the $1.3 million with an investor fund that held pre-IPO Facebook shares. But according to the fund, Prima had falsely represented itself as an agent of the fund to Prima’s clients. This led the fund to terminate Prima’s account and return the $1.3 million. Rather than return all this money to the original investors, Prima then, according to the SEC, misappropriated at least half of the $1.3 million, losing $625,000 in day trading.

Prima subsequently conducted a second email solicitation for investors in Facebook shares, this time netting just over $1 million from approximately three dozen investors, according to the SEC. Prima invested this money with a second fund that held Facebook shares. But just as before, the SEC said Prima ultimately misappropriated those funds and lost the money in day trading.

Finally, in the months leading up to Twitter’s November 2013 IPO, the SEC said Prima used another email solicitation to raise about $350,000 from about a dozen investors who were promised pre-IPO shares in the social media network. “In fact,” the SEC alleged, Prima “never purchased any Twitter shares” and once again used the funds for day trading and paying Argyropoulos’ personal expenses.

The SEC said Argyropoulos and Prima agreed to settle the Commission’s civil charges without admitting or denying guilt. Separately, the SEC also filed administrative charges against a Texas stockbroker who allegedly aided and abetted Prima. That broker has decided to contest the SEC’s charges in an administrative proceeding.

Always Do Your Research

The Prima case illustrates the risks of purchasing stocks through email solicitations. Investors should be especially wary of claims regarding pre-IPO shares bought and sold on secondary markets. Before investing money with any broker, it is important to perform due diligence and research the company’s history and performance.

Still, even the savviest investor may fall prey to a scheming broker who misappropriates client funds for his own use. If you believe you have been a victim of such a scheme, contact Boca Raton securities fraud attorney Gregory Tendrich, P.A., today to discuss your situation.

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