On March 3, 2023, the Securities and Exchange Commission (SEC) charged Silver Edge Financial LLC, Equity Acquisition Company Ltd. (EAC), their owners, and sales staff with unregistered broker-dealer activity related to their sales of interests in shares of various pre-IPO companies. In this article, we will discuss the details of the case and its implications.
The Background of the Case
Since January 2019, Silver Edge Financial LLC, its owner Daniel J. Mackle, Sr., and six salespeople sold interests in two funds that were set up as series LLCs, with each series representing an interest in shares of a single pre-IPO company. The underlying assets in these series were interests in shares of companies that were expected to undertake an initial public offering or other liquidity event within two-to-five years. Despite raising more than $65 million, Silver Edge, Mackle, and the salespeople failed to register as brokers with the SEC, as required.
Additionally, Equity Acquisition Company Ltd. (EAC) and its founder, Carsten Klein, acted as unregistered dealers in connection with their business of obtaining pre-IPO shares and offering them for sale to various pre-IPO funds, including the Silver Edge funds. EAC purchased more than 14 million shares of pre-IPO companies, including a number of highly-anticipated offerings, and sold more than $13.4 million in shares to various pre-IPO funds, while keeping the remaining shares in inventory.
The SEC’s Findings
The SEC’s Orders found that Klein, EAC, Mackle, Silver Edge, and the six salespeople violated Section 15(a) of the Securities Exchange Act of 1934. Without admitting or denying the findings, all respondents agreed to cease and desist from future violations.
Silver Edge and Mackle agreed to pay disgorgement and prejudgment interest of more than $2.5 million and a civil penalty of $975,000. They also agreed to industry and penny stock bars with the right to reapply after five years. EAC and Klein agreed to pay disgorgement and prejudgment interest of more than $3.6 million and a civil penalty of $269,360.
Moreover, Silver Edge, Mackle, EAC, and Klein agreed to undertakings that will help ensure the legal and orderly distribution of pre-IPO interests. The six salespeople – Scott Esposito, Richard Konopka, Robert Daniel Louis, Dave Nicolas, Joshua Simmons, and Daniel Esposito – agreed to pay civil penalties ranging from $61,000 to $124,320 and to industry and penny stock bars.
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Mark Astarita is a nationally recognized securities attorney, who represents investors, financial professionals and firms in securities litigation, arbitration and regulatory matters, including SEC and FINRA investigations and enforcement proceedings.
He is a partner in the national securities law firm Sallah Astarita & Cox, LLC, and the founder of The Securities Law Home Page - SECLaw.com, which was one of the first legal topic sites on the Internet. It went online in 1995 and is updated daily with news, commentary and securities law related links.
