Key Points

• The SEC’s August 2026 enforcement actions signal increased scrutiny of fraud, conflicts of interest, hidden markups and unregistered activity in the pre-IPO secondary market.
• Investment advisers must provide transaction-specific written disclosure and obtain affirmative client consent before principal transactions, while ensuring that all fees and uses of fund assets are authorized and fully disclosed.
• Fund managers investing in secondary shares should reassess their Advisers Act registration status because such purchases generally don’t qualify as direct-issuer investments under the exemption for venture capital fund advisers.

SEC Increases Scrutiny of Pre-IPO Secondary Investments

In the last several years, we have seen a tremendous focus in the alternative investment community on the pre-IPO secondaries market, which according to a recent article in Pitchbook, has reached $120 billion. Access to shares of companies such as Anthropic, OpenAI, Klarna and SpaceX has driven a rise in special purpose vehicles (SPVs) and the creation of multilayered investment schemes, which are now becoming the focus of SEC investigations.

In back-to-back actions in August 2026, the SEC charged two separate pre-IPO fund operations with fraud and multiple violations of the applicable securities laws, highlighting the breadth of enforcement risk across the pre-IPO secondary market. Both cases involved principal transactions in which the fund operator purchased pre-IPO shares at one price and sold them to client funds or investors at a significantly higher price. On August 10, the SEC charged Adit Ventures Management LLC, its CEO Eric Munson, and three affiliated general partners with defrauding investors through self-dealing principal transactions, undisclosed fees, unauthorized loans and misrepresentations about fund holdings, when the defendants acquired SpaceX shares at $420 and resold them to a fund at $498 per share without the required consent. On August 14, the SEC charged Andrew Spaventa and three entities he controlled with defrauding more than 800 mostly retail investors through a boiler room operation, where investors paid prices on average 46% higher than Spaventa’s acquisition cost, generating approximately $23 million in hidden fees.

Fund managers and advisers, and their investors, have much to learn from these two SEC enforcement actions. There are specific steps each can take to protect themselves in this regulatory environment. We’ll provide a full list of recommended actions later in this piece. But first, let’s dig into the dynamics of the pre-IPO secondaries market, and the details of both cases.

What Is Happening in the Secondaries Market?

Pre-IPO secondaries are transactions in which existing shareholders of a private company sell their shares to other investors before the company goes public through an initial public offering (IPO). Unlike a primary offering, where the company itself issues new shares to raise capital, a secondary transaction involves the transfer of already-issued shares between parties, so the company does not receive any proceeds. In a typical pre-IPO secondary, early stakeholders such as founders, employees or early-stage venture capital investors sell some or all of their holdings to buyers who want exposure to the company before it lists on a public exchange. The buyers are usually institutional investors (hedge funds, late-stage growth equity funds, family offices) or specialized secondary-market platforms. Pricing is negotiated privately and is often benchmarked to the company's most recent primary funding round, though discounts or premiums may apply depending on demand, information availability and the company's perceived trajectory toward an IPO.

Typically, such sales are subject to rights of first refusal (ROFRs), lock-up provisions, and board or company consent requirements that must be satisfied before any transfer. Even though the company is not a party to the sale, it often must consent to the transfer and update its cap table and stockholder records. Certain secondary sales are remote from the company’s cap table and take place at the level of SPVs that hold interest in other SPVs that may directly hold shares of the company. Anthropic and OpenAI have recently targeted such SPVs, voiding or threatening to void unauthorized transfers of stock.

Also, the secondaries space is overrun by commission-seeking intermediaries that are not registered as broker-dealers. Entering into a transaction with, and paying commission to, an unregistered broker-dealer is in violation of the US securities laws and therefore may be voidable, which gives investors recission rights and may lead to aider and abettor liability for the fund managers.

Furthermore, as valuations of the pre-IPO companies with active secondaries trading market skyrocket, fund managers that operate as exempt reporting advisers find themselves without any available exemption from the registration requirements of the Investment Advisers Act of 1940 (“Advisers Act”) and therefore in violation of the Advisers Act for failure to register as investment advisers.

The SEC is now taking a closer look at such SPVs and those who manage them. The two cases discussed below present a comprehensive overview of legal issues that may arise in the pre-IPO secondaries market.

The Adit Ventures Management Action

On August 10, 2026, the SEC charged Adit Ventures Management LLC, its Chief Executive Officer Eric L. Munson, and three affiliated general partner entities (the “GPs”) with defrauding investors. All defendants consented to the entry of final judgments that permanently enjoin them from violating the charged provisions of the federal securities laws, without admitting or denying the SEC’s allegations. Disgorgement, prejudgment interest and civil penalties are to be determined by the court.

Below is the overview of the charges:

Principal Transactions Without Consent. The SEC alleges that the GPs regularly purchased interests in pre-IPO companies at one price and then caused client funds to purchase those same interests from the GPs at a significantly higher price, keeping the spread for themselves. In one illustrative transaction, a GP acquired an interest equivalent to approximately 13,100 shares of SpaceX at $420 per share and, just weeks later, sold the same interest to a client fund at $498 per share, pocketing a spread of approximately $1 million. The true acquisition cost was misrepresented to investors.

Under Section 206(3) of the Advisers Act, a transaction in which an investment adviser, acting as principal for its own account, sells a security to a client constitutes a “principal transaction” that requires written disclosure to the client before completion, identifying the capacity in which the adviser is acting, namely, as principal. The disclosure must include the material terms of the specific transaction, including the price and any conflicts of interest, and the adviser must obtain the client’s affirmative consent to that transaction before it is completed. A blanket authorization in fund documents or a general waiver is not enough: Consent must be obtained on a transaction-by-transaction basis. The SEC has emphasized that boilerplate consent language in offering documents is insufficient to satisfy Section 206(3). The SEC alleges that this consent was never obtained.

• False Claims About Fund Holdings. The complaint alleges that Munson solicited at least one investor by falsely claiming that a fund already owned shares of a specific private pre-IPO company. These misrepresentations were material to the investor’s decision to contribute capital and constitute a direct violation of the anti-fraud provisions of the federal securities laws.
• Unsecured Loans From Fund Assets. The defendants allegedly took loans from fund assets on favorable terms for their own benefit. These loans were not authorized by the funds’ governing documents and were not disclosed to fund investors. Using client capital for the personal benefit of the fund manager, without authorization or disclosure, is a textbook breach of fiduciary duty.
• Undisclosed and Unauthorized Acquisition Fees. The SEC further alleged that the defendants charged client funds millions of dollars in “acquisition fees” that were not authorized by the funds’ operating agreements, private placement memoranda or other governing documents. Fund managers must ensure that every fee charged to a fund has a clear basis in the fund’s organizational documents and is fully disclosed to investors.
• Pledging Fund Assets as Collateral. According to the complaint, the defendants pledged client fund assets as collateral to secure a $10 million credit line. Proceeds from this credit line were used, in part, to satisfy the defendants’ own financial obligations, not those of the fund or its investors. Pledging client assets for the manager’s personal benefit, without disclosure or authorization, represents a severe breach of the fiduciary duty of loyalty.
• Failure to Register as an Investment Adviser. For approximately eight years, Adit Management filed with the SEC as an exempt reporting adviser (ERA), relying on the venture capital fund adviser exemption under Section 203(l) of the Advisers Act. That exemption, implemented through Rule 203(l)-1, is available only to advisers whose funds invest at least 80% of their aggregate capital contributions in “qualifying investments,” defined as equity securities acquired directly from the issuing company.

Because Adit’s funds purchased shares on the secondary market (not directly from issuing companies), those investments did not constitute qualifying investments under the rule. The SEC alleges that Munson knew the funds did not qualify for the exemption at least as early as May 2022, yet did not register Adit Management as an investment adviser with the SEC until March 2024, a delay of nearly two years during which the firm operated without the regulatory oversight, examination authority and compliance obligations that registration imposes.

The Spaventa/TSG Action

Just four days later, on August 14, 2026, the SEC filed a separate complaint charging Andrew Spaventa and three entities he owned and controlled, The Spaventa Group LLC, TSG Capital Advisors LLC, and TSG Alpha Partners LLC (collectively, “TSG”), with fraud and other violations in connection with unregistered securities offerings of 11 private funds that purportedly provided retail investors an opportunity to invest in pre-IPO shares. According to the complaint, between approximately December 2020 and June 2025, the defendants raised more than $74 million from more than 800 mostly retail investors across the United States. Through entities he owned, Spaventa purchased pre-IPO shares, either directly or through another investment fund, and then sold them in principal transactions to his funds at marked-up prices. These markups were passed on to investors in the form of hidden fees charged on the sale of membership interests in the funds.

The SEC’s complaint paints a picture of systematic fraud across multiple dimensions. Below are the core categories of alleged misconduct:

• Undisclosed Principal Transactions and Hidden Markups. The complaint alleges that through entities he owned, Spaventa purchased pre-IPO shares and then caused his funds to purchase those shares from his entities at substantially marked-up prices. The markups were passed on to investors as hidden fees included in the prices of fund interests. Although Spaventa and TSG knew these markups existed for all but the first fund, they misleadingly stated in offering documents only that affiliates “may” receive income from such sales. Because Spaventa’s entities served as investment advisers to the funds, these undisclosed markups constituted undisclosed principal transactions in violation of Section 206(3) of the Advisers Act.
• Misrepresentations About Fees. Defendants falsely told investors that they would pay either no upfront fees at all or upfront fees of at most 12.5%, when the actual prices investors paid were on average approximately 46% higher than the prices Spaventa paid for the investments. As a result of their fraud, the defendants collected approximately $23 million in upfront fees from unsuspecting investors, of which more than $12 million was funneled to sales agents for commissions and approximately $4 million went to Spaventa personally, which he used for personal expenses such as luxury car payments and home renovations. The vast majority of fund investors have not recouped their investments, and some have incurred total or near-total losses. The SEC alleged that this misrepresentation was central to the scheme, as it induced investors to invest based on a fundamentally false understanding of the economics of their investment.
• Misrepresentations About the Value of Securities. The complaint contains allegations about numerous other misrepresentations regarding the market value of pre-IPO securities, expectations of investment returns, prior performance and the fact that the funds already had such securities.
• Violations of Securities Act Registration Provisions. Fund interests were offered and sold to the investors without registration under the Securities Act of 1933 or reliance on any exemptions.
• Boiler Room Sales Practices and Unregistered Broker-Dealer Activity. The defendants solicited investments using over 100 unregistered “sales agents” who were not associated with a registered broker-dealer to cold call and pitch the funds to thousands of prospective investors, many of them retirees, using high-pressure boiler room-style sales tactics. Spaventa drafted, reviewed and approved the materials sales agents used to solicit investors, including sales scripts. He made all hiring, firing and compensation decisions regarding sales agents, and TSG paid the agents commissions based on a percentage of the money they raised.

SEC Enforcement Trends in the Pre-IPO Secondary Market

The two August 2026 actions illustrate the SEC’s dual-pronged enforcement approach. The Adit case targets the sophisticated end of the market — a registered adviser engaging in self-dealing principal transactions, undisclosed fees, unauthorized loans and improper reliance on the venture capital fund exemption. The Spaventa case targets the retail-facing end — a boiler room operation using unregistered sales agents to deceive ordinary investors, including retirees, with hidden markups and high-pressure sales tactics. Together, they signal that no participant in the pre-IPO secondary market is beyond the reach of enforcement, whether operating as a registered fund adviser or as an unregistered boiler room.

These actions collectively signal that the SEC views the pre-IPO secondary market as an area of heightened risk for investor harm and will dedicate enforcement resources accordingly. Notably, SEC Chair Paul Atkins, while generally favoring deregulation and expanded market access, acknowledged in remarks made at the SEC Investor Advisory Committee Meeting in September 2025 that the SEC is:

“[E]xploring ways to facilitate the ability of individual investors to participate in the private markets, while at the same time protecting those investors from bad actors and fraud.”

The pace of enforcement in the pre-IPO space indicates that investor protection in this market will remain a bipartisan priority irrespective of the broader regulatory environment.

Practical Takeaways and Recommended Actions

For Fund Managers and Advisers

• Review registration status. If relying on the venture capital fund adviser exemption and buying secondary shares, verify immediately that at least 80% of each fund’s aggregate capital contributions are invested in qualifying investments (equity acquired directly from the issuing company). If not, check if another exemption is available, and if it is not the case, then register with the SEC immediately.
• Strengthen conflicts-of-interest policies. Implement and enforce written policies and procedures covering all related-party transactions. Require pre-clearance and, where appropriate, independent valuation for any transaction in which the adviser or an affiliate is on the other side of the trade.
• Formalize valuation procedures. Establish and document independent valuation methodologies for pre-IPO share transactions. Record and disclose true acquisition costs transparently to fund investors.
• Disclose all fees. Ensure that every fee charged to a fund, including any acquisition fee, transaction fee, or similar charges, is clearly authorized by the fund’s governing documents and disclosed in the PPM, financial statement, and capital account statements.
• Comply with principal transaction requirements. Before completing any transaction in which the adviser or an affiliate acts as principal, provide the client with written disclosure identifying that capacity and describing the material terms, including the price and any conflicts of interest. Obtain the client’s affirmative consent to the specific transaction and repeat that process for each subsequent transaction. A general authorization or waiver in fund documents, including boilerplate consent language in offering documents, is not sufficient under Section 206(3) of the Advisers Act. Document the disclosure, the transaction terms, and the investor’s transaction-specific consent.
• Audit fund document compliance. Review operating agreements, PPMs, side letters and subscription agreements to confirm that all actual practices, including loans from fund assets, pledges, and fee arrangements, are authorized and disclosed.
• Establish leverage and pledging controls. Adopt clear written policies governing when and for what purposes fund assets may be pledged as collateral. Fund assets should never be pledged to secure a manager’s personal obligations.

For Investors (Including High Net Worth Individuals and family offices)

• Ask about principal transactions. Request confirmation of whether the manager or its affiliates purchased shares before selling them to the fund. Demand written disclosure of the adviser’s principal capacity, the transaction price and other material terms, any conflicts of interest, the acquisition cost and any markup applied, and the fund’s affirmative consent to that specific transaction. A general authorization in fund documents or boilerplate language in an offering document is not a substitute for transaction-by-transaction consent.
• Understand the chain of title. Ask how many intermediaries the shares passed through between the original holder and the fund, and what markups were applied at each step. Also, understand what transfer restrictions exist at the company level and whether they have been complied with.
• Verify manager registration. Check the SEC’s Investment Adviser Public Disclosure (IAPD) database for an adviser’s filing status. If an adviser claims to be exempt under the venture capital fund exemption but the fund primarily acquires shares on the secondary market, the exemption may not apply.
• Scrutinize acquisition fee disclosures. Compare the fee authorizations in the PPM and operating agreement to the actual fees charged as reflected in the fund’s financial statements and capital account statements.
• Monitor fund leverage. Ask whether fund assets have been pledged as collateral and, if so, for what purposes and under what terms.
• Request regular reporting. Demand periodic transparency on portfolio holdings, transaction counterparties and detailed fee calculations.
• Watch for red flags. Be alert to reluctance to provide audited financials, vague or missing acquisition cost disclosures, undisclosed related-party dealings, and any indication of manager self-dealing.

Looking Ahead

The pre-IPO secondary market is not going away. With companies staying private longer than at any point in recent history, demand for secondary liquidity solutions will only continue to grow. The back-to-back Adit Ventures and Spaventa cases in August 2026 signal that the SEC will continue to pursue enforcement actions against both adviser fraud and retail-facing boiler room schemes in this space, regardless of the broader political environment.

For more information, please contact Arina Shulga at 212.450.9846 or ashulga@foxrothschild.com or Matt Bobrow at 212.878.7927 or mbobrow@foxrothschild.com.

This information is intended to inform firm clients and friends about legal developments, including the decisions of courts and administrative bodies. Nothing in this alert should be construed as legal advice or a legal opinion. Readers should not act upon the information contained in this alert without seeking the advice of legal counsel. Views expressed are those of the authors and not necessarily this law firm or its clients.