Sky Falling on Secondary Markets? Now the SEC Is Investigating.
It often seems that everyone with a little cash in the tech industry has a few Facebook shares in a back pocket, acquired through secondary markets from early employees and investors. Trading of shares in private companies like Facebook and Twitter, subject of long pieces in both The Wall Street Journal and the New York Times today, exists on secondary exchanges that carefully sidestep SEC rules about the number of stockholders a company can have before having to publicly disclose financial information.
But the heyday of secondary trading may be coming to a close. The New York Times says (rather vaguely) that the SEC has started an investigation into private company stock trading. The implication is, if the SEC is concerned about all this evasion of shareholder-count regulations, it could force companies like Facebook to go public:
Now, the Securities and Exchange Commission wants to learn more about the business of these stock trades. The agency has sent information requests to several participants in the buying and selling of stock in these four companies, according to two people with direct knowledge of the inquiry who requested anonymity because they were not authorized to speak about it….
It is uncertain what exactly the S.E.C. is looking into, but several securities lawyers say it could relate to understanding the number of shareholders at these companies.
Update: Mark Murphy, head of public affairs at SecondMarket, wrote via email: “It is important to note that SecondMarket has not received a letter or information request from the SEC, and we have no knowledge of any SEC inquiry.”
For a counterpoint of the role of secondary markets, see a piece I did on SecondMarket CEO Barry Silbert, who described the public markets as an unfriendly place for high-growth, young technology companies.
Image courtesy Flickr user funkblast.
Please see the disclosure about Facebook in my ethics statement.