I’ve previously blogged a couple of times about SPVs as a vehicle for investing in private companies. They not only skirt the law regarding the number of investors a company can have before it is required to make public disclosures, but they also may layer on high fees and suspect valuations – and that’s if they aren’t outright fraudulent.

Anyway, I post because Bloomberg had a nice feature on this yesterday, pointing out both the risk of fraud, and simply the risk of losing one’s shirt.  (It references two lawsuits that have been filed in Delaware over these vehicles; if I’m right, one I blogged about before, and the other is this one, where a fund put $10 million into an SPV that was supposed to acquire SpaceX shares, and doesn’t seem to be able to get any financial reports.)

But even aside from actual fraud cases, the SPV may only have shares in another SPV that somewhere down the line has shares, and leaving aside valuation and fee questions, when the company does go public, those shares might be locked up and nontradeable for some period of time, leaving the SPVs holding illiquid investments that could go down as easily as they go up.

Well, let’s just say if/when there are disappointed investors, you might think Delaware would have some interesting LLC interpretation to do, but, realistically, the arbitration clauses in those documents may prevent Delaware courts from ever getting ahold of it.

And another thing. New Shareholder Primacy podcast!  Me and Mike Levin talk about the EngageSmart opinion, and about proxy advisors and executive comp.  Here at Apple; here at Spotify; and here at YouTube.