The Securities Exchange Commission is looking into the trading of Facebook shares on private marketplaces.
The SEC inquiry includes transactions in Zynga, Twitter and LinkedIn shares within the same private markets that Facebook stakes have exchanged hands, according to a New York Times article citing two individuals who requested anonymity.
The probe seems kind of informal right now, based on the direction of the queries. The SEC sent information requests to people who are buying and selling these stocks, rather than specific representatives of the companies in question.
A more serious inquiry might ask for more information from SecondMarket or SharesPost, but the Times article didn’t suggest that the SEC queried executives at the venues where the private stocks trade — although people working at said markets might be buying and selling these stakes.
The probe would also have more gravity if the SEC quizzed the chief financial officers of Facebook, Zynga, Twitter and LinkedIn.
Perhaps the inquiries constitute research for possible regulations that would rein in, if not bring a halt to, trading of stakes in privately held companies. Now why would the SEC want to do that?
Trades of shares in privately held companies almost by definition have more risk than public stocks. SharesPost and SecondMarket address this with requirements that auction participants meet certain criteria. The SEC could decide that these transactions need stricter eligibility requirements.
Another approach could involve asking for more detailed disclosures of the companies’ earnings data as a prerequisite for the shares to trade on these private marketplaces. That would blur the boundary between public and private markets, but that blurring has already begun with the ability trade nonpublic shares more readily.
What do you think the SEC ought to do about the increased liquidity of private market stock such as Facebook holdings?