Secondary Markets

Wall Street Investment Firm Sues SecondMarket Over $2.4 Million in Facebook Shares

53622v6 max 250x250 Wall Street Investment Firm Sues SecondMarket Over $2.4 Million in Facebook Shares

SecondMarket founder Barry Silbert

New York City-based Felix Investments is suing SecondMarket in the New York Supreme Court over a $2,475,000 deal for Facebook shares that never came to fruition. Felix began investing in Facebook back in 2009 through two funds named Facie Libre 1 and Facie Libre II–meaning face book in Latin–and did a brisk business with SecondMarket. Dealbook’s Evelyn Rusli recently described Felix investors as “not part of Silicon Valley’s elite” and “more comfortable navigating the narrow streets of Lower Manhattan than on tree-lined Sand Hill Road in Menlo Park.” The suit is over a deal in January 2010 to buy 75,000 shares from Karl Voskuil, a Facebook software engineer, at $33 per share.

At the time, Facebook chose not to exercise its right of first refusal on selling the private shares, so Felix believed the sale had been sealed and informed its investors in March. However, as peHUB points out:

What [Felix] didn’t know at the time, it says in the suit, is that SecondMarket had failed to obtain a legal opinion for the Facebook shares within 60 days from when Voskuil notified Facebook of his intent to sale, instead missing the deadline by one day. Felix claims in its suit that it tried to “re-start” the 60-day window, but by April of last year, Facebook had instituted a new insider trading policy that kept Voskuil from selling the agreed-upon shares.

According to the suit, Mr. Voskuil returned the purchase price of $2.4 million to Felix in March, 2011–minus SecondMarket’s $75,000 fee (typically it collects three percent of a transaction). But Felix is seeking damages, including a lost profit of $9.5 million based on Facebook’s current (theoretical!) $70 billion valuation on SecondMarket, assuming that Voskuil’s 75,000 shares would be worth $12 million today.

Before the lawsuit, Dealbook’s Ms. Rusli also noted that “Felix was among the first of the new money, snapping up millions of shares in Facebook, LinkedIn, Twitter and Groupon at billion-dollar-plus valuations,” and that “The flood of new money, some investors and technology executives say, is inflating valuations and disrupting the way new Web start-ups have long been nurtured.” Back in 2009, Felix formed a plan: “Buy as many shares of the largest private Internet companies as quickly as possible. And if valuations go up, just buy, buy, buy.”

Help inflate valuations and then sue for actual cash based on those inflated valuations? Yup, that sounds like our Wall Street.

Follow Nitasha Tiku on Twitter or via RSS. ntiku@observer.com