The Securities and Exchange Commission is looking into the booming trade in the privately held shares of popular social networking behemoths such as Facebook, LinkedIn, Twitter and Zynga, according to reports in The New York Times and elsewhere.
Citing unnamed people with knowledge of the matter, The Times said the SEC has sent "information requests" to several participants in the trading of these four companies' shares. It did not say who the participants are. The SEC declined to comment.
Shares of privately held companies can be traded on private stock exchanges such as SecondMarket, based in New York and SharesPost, based in San Bruno, Calif. The shares are generally sold by former employees or early investors in these companies. Only institutional investors or high net-worth individuals — those worth over $1 million — can buy the shares.
SecondMarket spokesman Mike Murphy said the company has not received any correspondence from the SEC regarding either a formal or informal inquiry on the issue. SecondMarket is a registered broker dealer and is regulated by the SEC, he added.
SharesPost said in a prepared statement it does not comment on "confidential discussion with any third parties," including regulators. It added it has, since its launch, "made efforts to keep the SEC's (staff) apprised of the evolution of its marketplace" and to comply with SEC guidance. Unlike SecondMarket, SharesPost has not registered as a broker dealer or an exchange, according to its website.
A big reason the SEC may be curious about the trading of these popular private startups' shares is because once a company hits 500 shareholders, it must disclose certain financial information to the public, even if it hasn't filed for an initial public offering. Facebook has been trying to put off reaching this threshold. For example, it has barred current employees from selling their shares.
But for those who can sell them, the market is on fire. On SharesPost, a completed contract between a buyer and a seller valued shares of Palo Alto, Calif.-based Facebook at $25 each. This implies a valuation of nearly $57 billion for the world's largest social network. For Twitter, meanwhile, a recent contract for Series B preferred shares implied a valuation of $4.9 billion.
Facebook and Twitter declined to comment.
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