New York: The Securities and Exchange Commission is looking into the trading of shares in privately held companies that include Facebook Inc and Twitter Inc, says a media report.
"Securities and Exchange Commission (SEC) is looking into the trading of shares in privately held companies that include Facebook and Twitter," the Wall Street Journal said, attributing the news to a source familiar with the matter. The report said that SEC probe was at a preliminary stage and appeared to be focussing partly on funds, set up to allow investors' access to shares in private companies.
The agency has sent letters to several participants in the trading, seeking information about topics that include how such funds are valuing shares of the private companies, which don't publicly disclose financial information, it noted. According to the publication, SEC Facebook and Twitter declined to comment.
Further, the investigating agency is understood to be looking at possible breaches by any of the tech companies of an SEC rule on financial reporting, as a result of increased activity by the investment funds.
The SEC rule requires private companies to disclose financial information if they have more than 500 shareholders. One issue for enquiry is whether the investment funds are providing a way to circumvent that 500-person limit, the report said citing source.
Another issue being considered by the regulator is whether the people who are making these shares available need to be registered as broker-dealers, it added.
The report said that private exchanges such as SharesPost and Second Market have popped up to facilitate trading in these companies. The sellers of stock are former employees and advisors of start-up companies.
SecondMarket said that it has not received any letters of enquiry from the SEC while SharesPost said the company has kept the SEC apprised of its marketplace and structured its activities to comply with guidance from SEC staff.
Meanwhile, Facebook and some other technology start-ups have taken steps to curtail such trading, in view of the 500- shareholder rule. Among other moves, Facebook in April forbade its employees to sell the company's stock.
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