On June 12, the long awaited SpaceX IPO (SPCX) went public and millions of Elon Musk's followers gobbled up the shares. The IPO stock price of $135 per share gave SpaceX an astounding valuation of $1.7 Trillion.
Millions more SpaceX shares are scheduled to flood the market as “early stage” (or pre-IPO) investors and employees cash out their shares when the lockups expire this month.
According to a recent Wall Street Journal article, The Investors Whose SpaceX Shares Vanished Before They Could Cash In, there were also many investors who thought that they bought pre-IPO shares in SpaceX through a “Special Purpose Vehicle” (SPV) called “Late Stage Management”. These investors were thrilled that they were finally going to make a tidy profit on those shares when the lockup expired. Instead, they learned that their shares had been sold two years ago. The SPV has been charged with investment fraud.
SPVs purportedly hold shares in “private” companies ( like pre-IPO SpaceX) either directly or indirectly, by investing themselves in other funds with stakes. Some SPVs don't directly sell stock but, instead, sell “exposure” to stock by investing in other funds that hold the stock.
Think of the SPV as a “Russian Doll” with an investment—in another investment—which may or may not own the stock.
With demand far outstripping supply to invest in SpaceX before it went public, “alternative" investment managers sold millions of shares of SPV investments with outsized fees of 5 % plus 20 % of any profits.
According to the Journal, SPVs are exploding as Wall Street markets to retail investors private shares in some of the most sought after companies, such as Anthropic and Open AI, which are scheduled to go public later this year.
Investors should check with an investment fraud lawyer to evaluate whether their pre-IPO investment is simply a Russian Doll investment.
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