The Securities and Exchange Commission is paying special attention to the way shares of private companies like Facebook and Twitter are trading.  As more investors get a chance to own shares of private companies like Facebook, the SEC wants to know how they're doing it.  The SEC has apparently asked Facebook, Twitter, LinkedIn and Zynga for information related to trading activity, according to a report from Dealbook.  Since the companies have yet to trade on a public exchange they are able to keep most financial information under wraps-and avoid the rules and regulations associated with being a public company. Facebook billionaire Mark Zuckerberg recently said he’d “maybe” consider taking the company public.  Until then though, investors looking to get a piece of Facebook are buying up shares through private exchanges through websites like SharesPost. The sellers of privately held shares are usually former employees or early investors who are looking to cash out. Of course, there are plenty of other investors eager to take those shares off their hands.  From The Wall Street Journal:  Trading in shares of Facebook has been particularly strong in the past month. The surge began after a big transaction in November, when venture-capital firm Accel Partners, an early backer of the social-networking firm, sold less than 15% of its stake for $517 million, say people familiar with the deal. The deal, some details of which were reported on tech blogs, valued Facebook at around $35 billion, those people say.  Soon after the sale, Facebook’s trading volume and price surged on SharesPost and SecondMarket, two exchanges that allow trading of closely held firms’ shares. In the past month, the average valuation of Facebook based on transactions on SharesPost has risen almost 25%, to more than $56 billion, the exchange said. SecondMarket said Facebook’s valuation had risen about 12% over the same month. Such differences are possible because these aren’t public markets.  Those buying the shares on the private exchanges include Wall Street firms looking to own a piece of the Facebook/Twitter pie before the companies go public- which is when they believe their investments will pay off handsomely. The firms are sometimes pooling client assets specifically to buy a piece of the social networking companies.  How many people own a piece of Facebook? If it's more than 500, Mark Zuckerberg may have to take the company public.  That’s all fine with the SEC. But what the SEC might be wondering, according to the The New York Times, is just how many investors are a part of those investment pools. The exact number of shareholders matters because once a private company has more than 500 shareholders it must register its shares with the SEC and disclose its financial information.  It’s the same issue that Bill Gates was faced with when the number of Microsoft shareholders hit 500. As a result in 1985 Gates “reluctantly” agreed to an IPO, the Times reports.
Shares of social networking companies trading more frequently on private exchanges. The SEC is watching and asking questions.