It's hard to say which are more startling – the accusations of fraud against fund manager Frank Mazzola, or the emails he's still sending out to investors asking for more money.
Since 2009, Mazzola's business has been buying stock in much-talked-about pre-IPO private companies, like Facebook and Twitter, pooling that stock into funds, and then selling stakes in those funds to wealthy individuals.
At least, that's what Mazzola says his business is.
The SEC says different.
In March 2012, the SEC charged Mazzola and Felix Investments, the brokerage firm he co-owns with his uncle John Bivona, with several counts of fraud.
Specifically, the SEC said Mazzola and his partners "misled investors about the compensation they earned, engaged in undisclosed self-dealing adverse to the funds and the funds' investors, lied about the amount of stock the funds actually held, and freely misstated material facts· about the companies in which the funds were investing to attract potential investors."
It's long, though.
So here are the highlights:
- The SEC says Mazzola lied to investors about how much Facebook stock his funds actually owned.
- The SEC says Mazzola neglected to tell his investors that Facebook had blocked him from buying Facebook shares.
- The SEC says that when Mazzola was unable to find more Facebook stock to add to his funds, he responded to overwhelming demand by allowing early investors in the fund to sell their positions to new investors at a significant mark-up. One of those early investors was Mazzola's uncle, a partner in Felix.
- The SEC says Mazzola falsely claimed his funds were "Facebook-approved."
- The SEC says Mazzola inflated his own fees by paying a third-party broker-dealer fees to find Facebook stock, and then collecting a percentage of those fees.
- The SEC says Mazzola falsely claimed to know the financials of Twitter, and used the information to solicit investment.
Mazzola and the SEC have not settled. We're told to expect a trial to begin on January 21 in San Francisco.
Mazzola tells us, "This is a civil fraud charge and just that a charge."
It does not mean we did anything wrong or are accused of committing a criminal act and we look forward to resolving this issue especially since it has been going on for most two years now. We have never stolen from anyone and if we did I do not believe we would be having this email exchange today. We were originally accused of being a Ponzi scheme for selling Facebook stock we did not own but after delivering every share of Facebook stock, LinkedIn stock and several other opportunities that we have had liquidity events for we have proven those allegations false. If I am guilty of anything it is the strong conviction I have in the companies we are involved with and I am not afraid to express how I feel. You for the most part get to write what ever you want about anyone you want with little or no repercussion other than eventually you will be proven right or wrong. We are fighting this charge at a great expense because we feel we did nothing wrong.
Page 2 of 5 - Meanwhile, Mazzola is still going about his business.
A reader sent us the following emails that Mazzola has recently sent out to clients.
In this email, Mazzola revels in the news that Twitter announced its IPO. He tells clients he has some more stock to sell. He says, "Opportunities like this do not come around every day so we are pounding the table."
When reading this email and the ones that follow, the key thing to remember is that Mazzola's opinion is not based on reality. He doesn't know Twitter's financials, which are private, and he doesn't know how many shares of Twitter are outstanding.
From: Mazzola Frank?
Date: Friday, September 13, 2013?
Subject: With a tweet, Twitter kicks off next big tech IPO?
With a tweet, Twitter kicks off next big tech IPO
Needless to say I feel like I just hit the lottery I have so many friends which I never knew I had before twitter’s filing. They are obviously all begging for whatever twitter stock they can get and for good reason. We have stock at $31 that I am offering out to investors. Whatever is left at the end of the day we are buying for ourselves. This will be in my opinion a $30+ billion company day one and $100+ billion company in the not so distant future. Opportunities like this do not come around every day so we are pounding the table which we have been for some time telling our investors to take advantage of it as we intend to do so ourselves.
The same goes for Bloom Energy, Palantir, ZocDoc, Badgeville and oDesk. They are must own opportunities in my opinion and they also have a very limited shelf life in that we do not have much stock and we expect major events for all of them in the short-term. As I have said numerous times we are in the middle of one of the most prolific times in history to be investing. Fortunes will be made and lives changed if you believe and act. We have access to the hottest companies all of which in my opinion are the next big thing.
If you are interested in twitter or any other of our opportunities I mentioned let us know.
Page 3 of 5 -
Sharing another link about the Twitter IPO, Mazzola speculates about the size of Twitter's market cap. He thinks it will be big.
From: Mazzola Frank
Date: September 19, 2013 at 4:13:13 PM PDT
Subject: Twitter IPO
Twitter in talks to add banks to IPO, set fees: sources
I agree with the article that the IPO will happen in November but I disagree with the $15 billion valuation. Once we get Facebook’s and Google’s earnings in late October they will have more than enough ammo to walk the value up and still insure a massively successful IPO. I think you are looking at a $25 bil+ val at the IPO and a big gain day one. If they do price it at $15 bil which I highly doubt we still get to where I expect we will be day one. Either way I strongly believe we have a very big win in a relatively short period of time which to me spells buy!
In this one, Mazzola follows up on the Twitter news to share his "opinion" with his clients, which is that "Twitter is going to be huge – the biggest most important social media company."
From: Mazzola Frank
Sent: Monday, September 23, 2013 4:10 AM
Subject: Twitter Poised to Become Next Biggest IPO of the Century
In my opinion Twitter is going to be huge – the biggest most important social media company. They will dominate TV advertising, mobile advertising, they are the second screen and adding music as a revenue vertical is a no brainer and those are just a few of the reasons why I feel so strongly. Owning twitter today is one of the most compelling investment opportunities I have ever seen and I believe you will regret not taking advantage of it!
Twitter Poised to Become Next Biggest IPO of the Century
Twitter gunning to go public before Thanksgiving, says report
WATCH: Twitter's Plan for TV Domination
Twitter said to hire ex-Topspin exec to head music effort
Frank G. Mazzola
In this one from a few days later, Mazzola warns clients that demand for Twitter stock is high, and that he's sold out of it. (But there's a chance clients can get in if they really want, so they should make an order anyway.)
Page 4 of 5 -
From: Mazzola Frank
Sent: Wednesday, September 25, 2013 5:31 AM
Subject: We are out of twitter stock...
We placed the remainder of our twitter stock last night so we are done. We are doing a firm close on Friday and whoever has not sent their paperwork or arranged for payment by Friday we are going to cancel those orders. So there is still a chance to get stock and we will handle those orders in a first come first serve basis. If you did not get stock and are still interested let us know and we will do our best to fill your order with any stock that gets put back.
In this email, Mazzola says he is out of Twitter stock, but he has "several other opportunities." "Like Twitter," he says, "they too will grow quickly."
From: Mazzola Frank
Date: September 25, 2013 9:45:18 AM PDT
Subject: What we have left in pre-IPO opportunities...
We have placed all of our Twitter and Palantir so we are completely out on both. We do have several other opportunities which we are very excited about the potential for substantial returns. Like Twitter and Palantir they too will go quickly. The IPO market is the hottest it has been in recent memory and only getting hotter and the companies listed below we believe will all file for IPO in the short-term if not already. We also believe each has the potential for substantial gains in a relatively short period of time.
Badgeville 40,408 at $10 per share
Bloom Energy 71,647 at $20.50 per share
Fab 125,000 at $6.95 per share
oDesk 53,185 at $6.75 per share
ZocDoc 5,662 at $17.00 per share
With the changes to the marketing laws under the JOBS Act now in effect (9/23 the new rules went into effect) are reach is far greater as a result inventory is moving much quicker. I have said numerous times that we are in one of the most prolific times in history to be investing and we are still in the early innings. We believe our roster of companies represent the best of the best and warrant consideration in every private equity portfolio. We have been able to show our investors venture capital like returns with a fraction of the typical hold time associated with venture capital/private equity type investments and we expect our current roster of companies to do the same.
If you are interested in any of our current opportunities let us know.
We asked Mazzola about his emails, and he said:
Every person who receives my emails is either an investor in one of Felix's funds or has requested information about the funds or someone I have done business with in the past (including the person who forwards my emails to you). I say what I believe is really going to happen - my opinion - right or wrong. Also all my emails are approved by our compliance department prior to me sending them out.
Page 5 of 5 -
What always struck me as odd is you are not the least bit curious or concerned about our performance or whether or not we are making our investors money? I think you would be shocked at what we have accomplished the past four years and the next few years are shaping up to be even bigger!
If you would like to speak in greater detail call me I have always taken your call!