A decade ago shares in an initial public offering were handed out as gifts to curry favor with business executives. The shares were all but guaranteed to pop on the opening day for an easy gain. The recent Twitter IPO had that similar feeling of a guaranteed pop. Gregory Gray thought he could make some money on this and brought investors along for the rollercoaster ride. Instead, the Securities and Exchange Commission allege that he took the investors along on a broken down merry-go-round.
Gray raise $5.2 million from investors to invest in pre-IPO shares with a targeted price of $20 according to the fund documents. It was a good bet. Twitter priced at $26, rose as high as $50 and closed on the opening day at $45.
The key was getting his hands on the shares and doing so at that price. The majority of investing world also believed that the pre-IPO shares were a good bet. So the shares would be hard to get.
According to the SEC, Gray missed his target. He only managed to purchase $1.8 million worth of shares at an average price of $23.44.
Gray also apparently missed the reason that anyone would sell the shares at a discount. Insiders’ shares are typically subject to a lock-up. Gray’s shares were subject to a restriction that they could not be sold for six months. That first day pop was meaningless for Gray and his investors.
Those facts alone are merely a missed investment opportunity. But… according to the SEC, Gray lied to his investors about how many shares he acquired and the lock-up. The SEC also alleges that moved cash among his funds to cover-up the lies.
Sources:
- SEC Halts Ponzi-Like Scheme by Purported Venture Capital Fund Manager in Buffalo
- SEC Complaint
- SEC Alleges Scheme Targeted Investors Seeking Pre-IPO Twitter, Uber Shares by Josh Beckerman in the Wall Street Journal
- Area Scam Artist Offering Hot Pre-IPO Shares Actually Bought Hot Pre-IPO Shares (And Shouldn’t That Count For Something?) by Jon Shazar in DealBreaker