Entrepreneur Tejpaul Bhatia is assured he owns a slice of Elon Musk’s SpaceX. But he can’t be 100% positive.
When the previous Google government entered the house business in 2021, SpaceX was already one of many world’s most sought-after private corporations, valued at about $75 billion, with shares largely locked up by early backers and establishments shut to Musk.
Bhatia couldn’t purchase shares instantly, so he turned to the secondary market the place a unfastened community of brokers purchase and promote the shares of privately owned corporations.
Now, with SpaceX getting ready for a inventory market debut this 12 months at a valuation close to $1.75 trillion, Bhatia might be sitting on a profitable funding, however his shares have been purchased by brokers that make possession arduous to confirm.
“I hope I didn’t get duped,” stated Bhatia, the previous chief government of house firm Axiom Space. “I don’t think I did, but again, there’s no way to know.”
He declined to share the worth of his funding, or the dealer’s identify.
The potential payoff from proudly owning SpaceX shares earlier than it goes public is large enough that many are prepared to pay a premium for entry and reside with the uncertainty.
“It’s the hottest IPO opportunity in history,” he stated.
Bhatia is amongst a rising swell of buyers who’ve poured cash into SpaceX by the opaque marketplace for private firm shares. These offers typically depend on special-purpose autos, or SPVs, which don’t own shares within the firm. They pool investor cash to purchase the rights to buy the shares at a later time.
“You are relying on the counterparties in these transactions and their reputations,” stated Mitchell Littman, a New York-based legal professional who advises SPV managers and secondary market buyers. He added, “Every time there is hype around these type of things, inevitably the fraudsters come out of the woodwork because they smell an opportunity.” The intense demand for SpaceX shares has led buyers to just accept unusually advanced preparations, based on 10 buyers, business specialists and analysts interviewed by Reuters.
SpaceX, the Securities and Exchange Commission and the Department of Justice didn’t reply to remark requests.
The rise of SpaceX and different scorching private corporations like OpenAI has reshaped the preliminary public providing panorama. Today most of the world’s most dear companies are staying private for years — constructing model recognition and creating intense demand from buyers — in contrast to in years previous when fast-growing tech corporations went public comparatively shortly.
That has pushed buyers keen to not miss out into secondary markets, the place shares change palms earlier than an IPO. As demand has surged, so has the usage of layered funding autos. Shares can go by as many as 5 intermediaries, every with its own layer of charges, obscuring who in the end owns what, based on two brokers.
“It’s getting a little loosey-goosey,” stated Namek Zu’bi, who manages a fund with greater than $500 million in belongings. He stated he turned down requests from his own buyers to purchase into SpaceX offers due to fraud considerations.
“A lot of people are going to make a lot of money,” Zu’bi stated. “But you’re also going to get a lot of people who are surprised or shocked” that they don’t own any shares.
In many SPV offers, buyers can see solely the entity instantly above them, not whether or not the shares on the prime really exist. “That’s not enough to be certain the shares exist,” stated one senior government within the secondary market business.
Increased layering provides prices, which successfully compresses the potential revenue margins and upside for buyers within the IPO.
“The bigger dangers are overpaying and then multiple layers of fees,” stated Jay Ritter, a University of Florida professor emeritus who researches IPOs, including that ranging from an already excessive valuation leaves restricted upside for buyers, with historical past exhibiting that corporations at elevated income multiples — even the largest — have tended to lag the market.
As SpaceX’s valuation climbs, some buyers concern that many might be holding little greater than paperwork when it goes public. In latest years, SPVs have drawn nearer scrutiny after a string of high-profile pre-IPO fraud instances. In December, financier Giovanni Pennetta was arrested at New York’s JFK airport on prices alleging he arrange a pretend funding automobile to promote nonexistent shares in defence expertise firm Anduril.
Pennetta pleaded responsible earlier this month to wire fraud prices. In 2023, a financier was sentenced to eight years in jail after defrauding greater than 50 buyers who gave him virtually $6 million to purchase pre-IPO shares in a number of corporations, together with SpaceX.
The U.S. Department of Justice has not publicly introduced a pre-IPO fraud case involving SpaceX since then. But buyers and business executives stated the corporate’s recognition has heightened the dangers.
Last month, Peter Wright, who generally acts as a intermediary between buyers and brokers, acquired a textual content message from one other dealer performing for an Emirati sheikh who wished to take a big stake in SpaceX.
“We have a family office interested in buying about $1.2 billion of SpaceX stock immediately, and are looking for a seller,” stated the message, which was seen by Reuters.
Yet even a suggestion of that dimension didn’t open the door to a deal. Wright and the sheikh’s dealer instructed Reuters the consumer couldn’t purchase shares instantly; the transaction didn’t shut.
Wright stated his agency refuses to work with offers that sit behind multiple middleman, citing the problem of checking possession. “At that point, diligence is impossible,” he stated.
Zu’bi stated demand is usually pushed by concern of lacking out somewhat than fundamentals.
“They want to say to their yacht friend, ‘Hey, I’m in SpaceX. Are you in SpaceX too?’” he stated.
Published – March 26, 2026 01:08 pm IST