Facebook, Twitter stock trading drawing SEC eye?

Heavy second-market trading of shares from privately held companies like Facebook and Twitter may have attracted the scrutiny of regulators.

The high degree of investor interest in shares of hot Silicon Valley companies that aren't yet publicly traded --like Facebook, Twitter, LinkedIn, and Zynga--may be leading to scrutiny from the U.S. Securities and Exchange Commission, according to a report late Monday on The New York Times' Dealbook blog.

Companies like SharesPost and SecondMarket offer exchanges for privately traded stock, and there's been no shortage of supply thanks to early employees and investors of companies like Facebook and Twitter who are looking to take some cash off the table. Much of the interest in the exchanges has been because it gives a peek at the hypothetical valuations of these otherwise tight-lipped companies. When less than 15 percent of early Facebook backer Accel Partner's stake sold in November for $517 million, trading took an uptick and the company's second-market valuation reached $56 billion.

Meanwhile, one of Facebook's most high-profile investors has said that the company does not plan on going public until 2012 at the earliest.

The reason the SEC has taken an interest, according to the Times, may be to gauge the number of shareholders in these companies. Should that number rise above 499 shareholders, a company like Facebook would be required by SEC rules to disclose its financial details to the public. Many of the entities buying second-market stock are pooled groups of individual investors, and if those individuals are counted, the total investor count could rise above that threshold.

Facebook, meanwhile, has taken measures to curb second-market trading, barring current employees from selling stock, and issuing stock to new employees in a restricted form that only takes on value if the company is sold or goes public.

About the author

Caroline McCarthy, a CNET News staff writer, is a downtown Manhattanite happily addicted to social-media tools and restaurant blogs. Her pre-CNET resume includes interning at an IT security firm and brewing cappuccinos.

 

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