Private-Share Trade Is Probed

The Securities and Exchange Commission is investigating potential conflicts of interest in the fast-growing market for buying and selling shares of private companies such as Facebook Inc. and Twitter Inc.

The move is part of a broadening probe by the U.S. agency, still at an early stage, of the thriving bazaar that has sprung up largely beyond the reach of regulators and traditional securities firms. Trades handled by SecondMarket Inc., SharesPost Inc. and other market makers specializing in privately held shares are conveying eye-popping valuations on some companies while disclosing little about their financial results.

Such market makers connect holders of private-company stock, often former employees, with potential buyers. But SEC officials are concerned that the middleman role could cause conflicts of interest, especially given the challenges of ascribing a fair value to privately traded shares, according to a person familiar with the situation.

SEC officials also believe some of the firms promoting stock-trading in private companies should be registered as broker-dealer operations but aren’t, according to people familiar with the matter. Licensed securities firms are subject to oversight and inspection by the Financial Industry Regulatory Authority and the SEC.

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