NEW YORK, March 25: Entrepreneur Tejpaul Bhatia believes he owns a stake in Elon Musk’s SpaceX, but he can’t confirm it. In 2021, when SpaceX was valued at $75 billion, Bhatia turned to the secondary market to buy shares. Now, with SpaceX preparing for an IPO at a $1.75 trillion valuation, many private investors are questioning whether they truly own shares.
The secondary market for private company shares is opaque, with transactions often involving special-purpose vehicles (SPVs) that obscure ownership. Investors rely on brokers and counterparties, but fraud risks are rising. Mitchell Littman, an attorney, warned that hype around these deals attracts fraudsters.
As demand for SpaceX shares grows, so do complex layers of intermediaries, increasing costs and reducing potential profits. Some investors fear they may end up with only paperwork when the company goes public.
Recent cases of pre-IPO fraud have raised alarms. In 2023, a financier was sentenced to eight years in prison for defrauding investors who sought to buy SpaceX shares. Despite these concerns, fear of missing out continues to drive investment.
Peter Wright, a broker, said a sheikh once offered $1.2 billion for SpaceX stock, but the deal fell through due to unclear ownership structures. Zu’bi, a fund manager, noted that many investors are driven by social pressure rather than financial fundamentals.