Special purpose vehicles have become the dominant structure through which retail and accredited investors gain exposure to privately placed equity securities of high-profile technology companies such as SpaceX, OpenAI, and Anthropic. The secondary market for pre-IPO shares has exploded in recent years, growing from approximately $17 billion in 2020 to over $45 billion in 2024. As companies have stayed private longer and demand for secondary liquidity has surged, SPVs have filled a structural gap—pooling investor capital to acquire shares on the secondary market and offering exposure to companies that would otherwise be inaccessible to most investors.
But the rapid expansion of the pre-IPO SPV market has outpaced the regulatory infrastructure that governs it. The result has been a wave of fraud, enforcement actions, and structural failures that have exposed deep vulnerabilities in how SPVs are formed, marketed, and managed. For managers operating in this space, the legal and regulatory risks are significant and growing.
Fraud, Chain of Title, and the Collapse of Trust in Pre-IPO SPVs
The most immediate threat to the pre-IPO SPV ecosystem is outright fraud. In a market where investors are eager to gain access to shares of companies they believe are headed for public offerings, the SEC has alleged that managers have exploited that demand by claiming to hold shares they never owned or to which they lacked valid title.
The SEC filed back-to-back enforcement actions in August 2026 that underscored the scale of the problem.
On August 10, 2026, the Commission brought charges against Adit Ventures Management LLC, alleging that the firm, its CEO Eric Munson, and three affiliated general partners defrauded investors in pre-IPO shares of companies including SpaceX and Klarna. According to the complaint, Munson falsely told investors that a fund owned shares it did not hold and resold SpaceX shares to the SPV at undisclosed markups. The action was simultaneously filed and settled.
Four days later, on August 14, 2026, the SEC charged an individual (the “Manager”) and three related entities with fraud in connection with approximately $74 million raised from more than 800, mostly retail investors, across 11 private funds. The Manager allegedly purchased pre-IPO shares through controlled entities and resold them to investors at markups averaging 46 percent. More than 100 unregistered sales agents cold-called investors to solicit purchases. That case remains in active litigation.
These actions were not isolated. In September 2024, the SEC brought charges against another advisor, alleging a $120 million scheme in which defendants told investors they owned pre-IPO shares when they did not. In July 2025, Linqto Inc., a platform that marketed pre-IPO SPV interests to retail investors, filed for bankruptcy after an internal probe, in the face of both an SEC and FINRA investigation, found that customers had never owned the securities they thought they did. The SEC and the Department of Justice opened investigations, and founder William Sarris was later indicted. In December 2025, Giovanni Pennetta of Sestante Capital was indicted for fabricating access to Anduril shares. He pleaded guilty in March 2026 and was sentenced to four years in prison.
The Chain of Title Problem
Even in circumstances where there is no fraud, the pre-IPO SPV market faces a structural problem that is arguably more damaging to the ecosystem as a whole: the chain of title issue. Pre-IPO shares are restricted securities under Rule 144 of the Securities Act. They carry restrictive legends that must be removed before the shares can be freely traded following an IPO. Legend removal requires the SPV to satisfy the conditions of Rule 144, obtain a securities counsel opinion letter, and, critically, secure the cooperation of the issuer in directing its transfer agent to remove the restrictive legend. Importantly, in order for the SPV to realize the economic value of the pre-IPO shares, the transfer agent must deliver the un-legended shares to the SPV’s brokerage account, where they can be held for appreciation or sold for immediate economic realization.
The issuer controls the transfer agent. If the issuer does not recognize the SPV as a valid shareholder because the original transfer was not approved under the company’s charter or bylaws, the issuer will refuse to cooperate, the legend will not be removed and the shares will not be delivered to the SPV, regardless of whether Rule 144’s conditions for sale by the SPV have been met. This is not a hypothetical risk.
In May 2026, Anthropic declared all unauthorized transfers of its equity “void” and explicitly banned SPVs from holding its shares, naming specific unauthorized platforms. OpenAI issued nearly identical warnings. Further, in connection with the SpaceX IPO, which was completed on June 12, 2026, there are reports that SPV investors still don’t know how many shares they’re entitled to or whether they’ll get any shares at all. Some SPV structures had stacked four to five layers deep and Forbes reported that, eight days after the initial lock-up expiration in the Space X IPO “nearly a billion shares haven’t arrived yet.” The Wall Street Journal reported on August 31, 2026, that the SEC had stepped up examinations of SPV firms, requiring registered investment advisers to prove that their SPVs actually own the shares they claim to own.
Unregistered Broker-Dealer Activity in the Pre-IPO Context
The fraud and chain of title problems in the pre-IPO space have drawn the most public attention, but they are not the only regulatory issues confronting SPV managers. The very mechanics of how most SPVs are marketed and sold, both in the pre-IPO space and otherwise, raise serious questions about unregistered broker-dealer activity.
When an SPV manager solicits investors to purchase membership interests in an SPV and receives transaction-based compensation, whether such compensation is characterized as commissions, placement fees, or percentage-of-capital-raised fees, that manager is effecting securities transactions for the account of others. That is the definition of a “broker” under Section 3(a)(4) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Absent registration or an applicable exemption, such activity violates Section 15(a) of the Exchange Act.
The enforcement record bears this out. In one of the recent enforcement cases, the SEC has alleged that more than 100 unregistered sales agents received over $12 million in commissions in connection with capital raising activity in related SPVs. In January 2025, three adviser representatives were charged with acting as unregistered brokers for soliciting clients to invest in pre-IPO LLCs and receiving transaction-based payments. The Commission has been direct: “Transaction-based compensation remains the defining hallmark of broker-dealer status.”
Broader Broker-Dealer Risks: Independent Sponsors and Single-Investment SPV Managers
The unregistered broker-dealer issue is not confined to the pre-IPO space. It applies with equal force to any SPV manager who raises capital on a deal-by-deal basis and receives compensation tied to the transaction. This includes a large and growing category of market participants: independent sponsors, fund-less sponsors, and other managers who form a new SPV for each acquisition or investment.
The typical independent sponsor model works as follows. The sponsor identifies a target company or investment opportunity, forms a new SPV to acquire it, and then solicits investors to commit capital to that specific vehicle. The sponsor earns a closing fee, commonly calculated as one to three percent of equity raised, upon completion of the transaction. That closing fee is, in both form and substance, transaction-based compensation. It is paid in connection with the consummation of a securities transaction, and its amount is determined by the size of the capital raised.
The SEC has been clear about where this leads. In an April 2013 speech that remains the Commission’s most detailed public guidance on the issue, David Blass, then Chief Counsel of the SEC’s Division of Trading and Markets, warned that fees for “investment banking” activities—negotiating transactions, finding buyers or sellers, structuring transactions… “involve transaction-based compensation that is linked to the manager effecting a securities transaction” and raise broker-dealer registration concerns. Blass specifically rejected the argument that the general partner and the fund are the same “person,” noting that when a fee is paid to someone other than the fund, the GP and the fund are distinct entities with distinct interests.
The SEC has backed up its guidance with enforcement. In June 2016, the Commission charged Blackstreet Capital Management and its principal, Murry Gunty, in connection with providing brokerage services, soliciting deals, identifying buyers and sellers, negotiating, structuring, arranging financing, and executing transactions, in exchange for approximately $1.8 million in transaction fees over seven years, all without being registered as a broker-dealer. The firm paid $3.12 million in disgorgement, interest, and penalties for violating Section 15(a).
The consequences of operating as an unregistered broker-dealer extend well beyond enforcement penalties. Contracts made in violation of the broker-dealer registration requirement are voidable under Section 29(b) of the Exchange Act, which means investors may have rescission rights, the use of unregistered brokers can jeopardize the Regulation D offering exemption for the private placement of the interests of the SPV itself and the sponsor who engaged the unregistered broker may face aiding and abetting liability. The combination of disgorgement, civil penalties, industry bars, and potential unwinding of completed transactions makes this a risk that no SPV manager can afford to ignore.
Structuring as an Investment Adviser: A Path to Compliance
The regulatory risks described above are serious, but they are not intractable. For SPV managers who are willing to restructure their operations, the Investment Advisers Act of 1940, as amended (the “Advisers Act”) provides a well-established legal framework that addresses both the broker-dealer issue and the broader regulatory vacuum in which many SPV managers currently operate.
An investment adviser is any person who, for compensation, engages in the business of advising others about the value of securities or the advisability of investing in securities. By structuring the SPV manager as an investment adviser to the SPV, the manager's compensation can be characterized as advisory fees—management fees and performance-based compensation—rather than transaction-based fees. This distinction is not merely semantic. Advisory compensation is the hallmark of the investment adviser relationship, while transaction-based compensation is the hallmark of brokerage activity. Restructuring compensation from the latter to the former removes the manager from the broker-dealer regulatory framework and places it squarely within the advisory framework.
Converting Closing Fees to Management Fees
The practical key to the restructuring is replacing the success-based closing fee—the transaction-based compensation that triggers broker-dealer concerns—with a fixed or asset-based management fee that compensates the adviser for ongoing advisory services. A management fee, typically calculated as a percentage of committed capital or assets under management, is the defining characteristic of advisory compensation. It is paid for the adviser's ongoing services to the SPV, not for the consummation of a particular transaction and is therefore typically paid out over the life of the SPV for the services the manager provides to the SPV, typically, due diligence, portfolio monitoring, and ongoing management services. Performance-based compensation in the form of carried interest or a promote is also advisory in character.
Federal Registration Exemptions
Many SPV managers will be exempt from full SEC registration under one of two exemptions created by the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The first exemption is available to any adviser that solely advises one or more “venture capital funds.” A venture capital fund is a private fund that represents to investors it pursues a venture capital strategy, invests at least 80 percent of its capital in “qualifying investments” (equity securities acquired directly from qualifying portfolio companies), is not leveraged beyond certain limits, and does not offer redemption rights. SPV managers investing in early-stage or growth-stage private companies may qualify as advisers to venture capital funds if at least 80 percent of their capital is deployed in direct equity purchases from private issuers.
The second exemption is available to any adviser that solely advises "private funds" (funds relying on Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act of 1940, as amended) and has less than $150 million in assets under management in the United States. This is the more commonly available exemption for independent sponsors and single-deal SPV managers, whose investment strategies may not fit the venture capital fund definition, for example, buyouts, secondary market purchases, or investments in non-qualifying assets.
Both exemptions require the adviser to file as an "Exempt Reporting Adviser" on a truncated Form ADV with the SEC. Importantly, however, the adviser is not subject to the full range of substantive requirements that apply to registered investment advisers, including the custody rule, the compliance rule and the advertising rule. For many SPV managers, ERA status provides a proportionate regulatory framework: enough to establish legitimacy and satisfy counterparty expectations, without the full compliance burden of registered adviser status.
State-Level Considerations
State investment adviser registration requirements vary and must be addressed separately. Many states exempt advisers that qualify as ERAs from separate state registration. However, some states may require notice filings or impose additional state-level requirements. SPV managers should evaluate their obligations under the laws of each state in which they maintain a place of business or actively solicit investors.
Some states also provide a de minimis exemption for advisers that have no place of business in the state and have fewer than a specified number of clients—typically five or six—in the state during the preceding 12-month period. For SPV managers with a national investor base, this exemption can reduce but rarely eliminates the state registration analysis.
Practical Considerations and the Path Forward
Restructuring as an investment adviser is not a mere formality. It requires the manager to acknowledge and accept fiduciary duties to the SPV and its investors, including duties of care and loyalty, and to manage conflicts of interest affirmatively. But the benefits are significant. Advisory compensation—management fees and carried interest—is well established, legally defensible, and does not trigger broker-dealer registration. The manager can provide the full range of services that SPV investors expect—deal sourcing, due diligence, transaction structuring, investor relations, and portfolio management—under the advisory umbrella, without the legal uncertainty that currently attaches to many of these activities.
For independent sponsors and single-deal SPV managers, the transition typically involves restructuring the management entity as the investment adviser to the SPV, replacing closing fees with a management fee or advisory fee, filing as an ERA under Section 203(l) or Section 203(m) of the Advisers Act, adopting a compliance framework appropriate to the adviser's size and strategy, and ensuring that any performance-based compensation satisfies the qualified client requirements of Rule 205-3 under the Advisers Act.
The SEC's intensifying enforcement in the pre-IPO SPV space is a reminder that the regulatory framework governing the offer and sale of securities applies with full force to SPV structures. The enforcement actions make clear that regulators view SPV managers as subject to the same rules as any other market participant who raises capital and effects securities transactions. Managers who have treated SPV formation and capital raising as activities that exist outside the regulatory perimeter should reassess their practices. The investment adviser framework, combined with the Dodd-Frank-era exemptions, provides a well-established path to compliance—one that protects both the manager and the investors who depend on them.
Please reach out to Mark Strefling (mstrefling@sadis.com) or David Fitzgerald (dfitzgerald@sadis.com) if you would like to discuss any of these issues further.
