SEC's new pre-IPO fraud cases trace investor money away from the deals it was raised for

An ownership check is designed to catch a case like Beyond Alpha's. Less than half of the nearly $6 million it raised for pre-IPO deals went into them, and much of the rest went into options trading that was later lost, according to the SEC ^[14]. That leaves about $3 million or more, meant for stakes in companies such as Kraken and SandboxAQ, in a different asset ^[20][12]. The SEC says 35 investors were defrauded of more than $8.7 million in all, roughly $249,000 apiece ^[6][19].

In that case the statements were part of the alleged fraud. The SEC claims the two men sent fake statements to investors, including one Dinelli allegedly "hand-delivered" to a Navy veteran couple saying their $750,000 investment had grown to $4.1 million ^[15]. The paper showed a 5.5-fold gain ^[21]. The trading fund sold alongside the pre-IPO pitch was marketed on "153%" net returns and lost money in 13 of 14 months, by the SEC's account ^[12][13]. Dinelli allegedly misappropriated more than $1 million, including $250,000 put into a documentary film, and Frankel more than $340,000 ^[16].

Meyer's case runs the other way. The SEC alleges he raised at least $18.5 million from nearly 100 investors, including for funds meant to hold OpenAI and SpaceX shares ^[4][5]. It says he misappropriated at least $1.27 million, about 7% of that ^[4][18]. The cash trail runs through a fund account holding only investor money, raised to buy shares of online casino operator Playstar ^[7][8]. A debit card tied to Meyer Global Partners was declined twice on a $4,400 strip-club bill at 4:41 a.m., the SEC claims ^[7]. Minutes later Meyer moved $10,000 from the fund account to the firm's account, and the bill was paid at 4:44 a.m. ^[7]. Three minutes ^[22]. The Playstar investors eventually got their money back, and the SEC called the transfer an undisclosed "interest-free loan" ^[9]. A look at what the fund owned would not show a repaid loan; a look at who could move cash out of the account would. Meyer invoked his Fifth Amendment rights when SEC staff asked about the transfer, and he did not respond to Fortune's request for comment ^[10].

The SEC has brought a series of charges since SpaceX's $1.8 trillion IPO in June, covering pre-IPO stakes, misappropriated investor funds and hidden fees ^[2]. Other recent cases alleged that hundreds of investors were drawn in by claimed access to Anduril, Anthropic and Perplexity ^[3]. Enforcement cases are a sample of vehicles where the SEC found a problem, so they do not yield a fraud rate for unverified vehicles, and Fortune's report does not give a count of cases or of access funds in the market.

Which check matters depends on the mix of that series. Should most of it resemble Beyond Alpha, a title check from someone other than the adviser screens out much of the harm. Cases like Meyer's point instead to control of the fund's bank account. Where hidden fees dominate, the loss can sit in the terms of a vehicle that owns exactly what it claims, and neither check helps.

I think the evidence supports a screening rule. Decline any vehicle that cannot show title from someone other than its adviser, and find out who can move money out of the fund account before wiring. Calling every unverified vehicle a likely fraud asks more of two complaints than they can show. The view is wrong if the later cases turn out to be mostly hidden fees on vehicles that did own their shares.