07 December 2016
Washington DC
Reporter: Drew Nicol

US broker fined for pre-IPO swaps negligence

The US Securities and Exchange Commission (SEC) has fined an online broker for failing to register security-based swaps that were sold to shareholders in pre-initial public offering (IPO) companies.

San Francisco-based Equidate was found by the SEC to have failed to submit a registration statement for the swaps as well as failing to sell them through a national securities exchange as required.

According to the SEC, Equidate offered liquidity for employees of private, tech start-ups holding restricted shares of their stock. Equidate’s platform then matched these shareholders with investors.

Equidate’s subsidiaries entered into contracts with the shareholders and investors, and payment provisions were triggered by a merger, acquisition, or IPO at the underlying company.

The broker ceased to offer the swaps in December 2015 following the SEC’s investigation and accepted a $80,000 penalty without admitting or denying the findings.

“Market participants are free to capitalise on the growth of private technology companies in the Silicon Valley or elsewhere, but laws must be followed to ensure security-based swaps are registered and sold through platforms where investors have full disclosure and protections,” said Jina Choi, director of the SEC’s San Francisco regional office.

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