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SEC Probes Trading in Private Companies Including Facebook and Twitter

27 points by 10smom 16y ago

ebaysucks 16y ago
Hopefully the SEC won't regulate secondmarket.com to death. I'm curious what made them pursue this - if there are no complaints, this move is just to keep themselves relevant or to protect the Wall Street buddies.
- bretpiatt 16y ago
  This isn't anything new caused by SecondMarket and Facebook wouldn't be the only company that isn't traded on a major public exchange that has to publish information, example SunGard: http://www.sungard.com/aboutsungard/financialinformation.aspx http://www.sungard.com/aboutsungard/financialinformation.asp... Having to file with the SEC doesn't force Facebook to go the route of a traditional IPO, they can continue to sell shares on limited access marketplaces such as SecondMarket -- they will just need to start publishing audited financials.
  - ROFISH 16y ago
    Wouldn't SOX also come into play?
    - sabat 16y ago
      No, because SOX (the law) only covers publicly traded companies.
- trotsky 16y ago
  There is a strong possibility the firms themselves have complained about the secondary markets and the private stock funds. If they became big enough, employees could potentially undercut their employer on future funding rounds. There is also the widely held belief that employees will work harder and be less likely to quit if they can't benefit from the appreciation of their shares until a liquidity event. Also, pricing in the secondary market by insiders could signal if a company is having troubles, something that they might otherwise be able to prevent from leaking out. You can see the results of these worries in facebook contracts that prevent current employees from selling their vested shares and the deal they struck in 2008 that allowed employees to sell only a 20% share of their vested options. If they were able to prevent ex-employees from selling their shares on the secondary markets they obviously would. So it would make some sense if the companies themselves are complaining about the practice to the SEC.
sabat 16y ago
Why would the SEC have any jurisdiction over private companies??
- cosgroveb 16y ago
  They have jurisdiction over trading of securities, which shares of private companies are... The Securities Exchange Act regulates the general-public trade in securities and amendments have extended the SECs mandate to include OTC trades as well as regulate companies that aren't listed on exchanges.
  - sabat 16y ago
    I didn't realize that -- seems like government overreach to me (a political moderate).
    - cosgroveb 16y ago
      Perhaps, but keep in mind that a lot of these regulations were enacted during times of economic crisis (the original Act was passed during the Great Depression).
      - endlessvoid94 16y ago
        Interesting. It seems to me that they should only then be utilized in similar economic climates.
      - yummyfajitas 16y ago
        This seems like a good argument against passing laws in response to a crisis. (See also: http://en.wikipedia.org/wiki/Sedition_Act_of_1918 http://en.wikipedia.org/wiki/Sedition_Act_of_1918 http://en.wikipedia.org/wiki/Patriot_act http://en.wikipedia.org/wiki/Patriot_act )
- tokenadult 16y ago
  Private companies are actors in interstate commerce, so there is a classic constitutional basis for federal regulation of what they do. http://topics.law.cornell.edu/wex/Commerce_Clause http://topics.law.cornell.edu/wex/Commerce_Clause Article 1, Section 8, Clause 3 of the United States Constitution enumerates the power of Congress "to regulate commerce with foreign nations, and among the several states, and with the Indian tribes." The Commerce Clause, by extensions throughout more than a century of Supreme Court cases, is actually the basis for perhaps as much as 90 percent of all federal legislation on all subjects, including subjects not as noticeably related to interstate commerce as security trading. The SEC gained many of its current powers in the aftermath of the Great Depression, which has been taken as a negative example of what happens when there is too little government regulation of financial markets.
known 16y ago
From my experience I learned that there only 2 ways we can consistently make profits in stock markets. 1. Front running 2. Insider trading
- yummyfajitas 16y ago
  1 is just a particular variety of 2. (By the way, you've just restated the efficient markets hypothesis.)
nitrogen 16y ago
Can anyone point to examples of harm done by mostly-unregulated private trading of private companies? As an aside I found it amusing that all that's required to turn the year in the SEC logo from 1934 into 1984 is adding an L in the middle.
- andylei 16y ago
  before the SEC changed its disclosure rules, firms could release earnings to a select group of investors before it released them to the open market. if you were in this select group, you were basically guaranteed trading profits. theoretically, facebook or twitter could do the same.

27 points by 10smom 16y ago

Hopefully the SEC won't regulate secondmarket.com to death. I'm curious what made them pursue this - if there are no complaints, this move is just to keep themselves relevant or to protect the Wall Street buddies.

bretpiatt 16y ago
This isn't anything new caused by SecondMarket and Facebook wouldn't be the only company that isn't traded on a major public exchange that has to publish information, example SunGard: http://www.sungard.com/aboutsungard/financialinformation.aspx http://www.sungard.com/aboutsungard/financialinformation.asp... Having to file with the SEC doesn't force Facebook to go the route of a traditional IPO, they can continue to sell shares on limited access marketplaces such as SecondMarket -- they will just need to start publishing audited financials.
- ROFISH 16y ago
  Wouldn't SOX also come into play?
  - sabat 16y ago
    No, because SOX (the law) only covers publicly traded companies.
trotsky 16y ago
There is a strong possibility the firms themselves have complained about the secondary markets and the private stock funds. If they became big enough, employees could potentially undercut their employer on future funding rounds. There is also the widely held belief that employees will work harder and be less likely to quit if they can't benefit from the appreciation of their shares until a liquidity event. Also, pricing in the secondary market by insiders could signal if a company is having troubles, something that they might otherwise be able to prevent from leaking out. You can see the results of these worries in facebook contracts that prevent current employees from selling their vested shares and the deal they struck in 2008 that allowed employees to sell only a 20% share of their vested options. If they were able to prevent ex-employees from selling their shares on the secondary markets they obviously would. So it would make some sense if the companies themselves are complaining about the practice to the SEC.

sabat 16y ago

Why would the SEC have any jurisdiction over private companies??

cosgroveb 16y ago
They have jurisdiction over trading of securities, which shares of private companies are... The Securities Exchange Act regulates the general-public trade in securities and amendments have extended the SECs mandate to include OTC trades as well as regulate companies that aren't listed on exchanges.
- sabat 16y ago
  I didn't realize that -- seems like government overreach to me (a political moderate).
  - cosgroveb 16y ago
    Perhaps, but keep in mind that a lot of these regulations were enacted during times of economic crisis (the original Act was passed during the Great Depression).
    - endlessvoid94 16y ago
      Interesting. It seems to me that they should only then be utilized in similar economic climates.
    - yummyfajitas 16y ago
      This seems like a good argument against passing laws in response to a crisis. (See also: http://en.wikipedia.org/wiki/Sedition_Act_of_1918 http://en.wikipedia.org/wiki/Sedition_Act_of_1918 http://en.wikipedia.org/wiki/Patriot_act http://en.wikipedia.org/wiki/Patriot_act )
tokenadult 16y ago
Private companies are actors in interstate commerce, so there is a classic constitutional basis for federal regulation of what they do. http://topics.law.cornell.edu/wex/Commerce_Clause http://topics.law.cornell.edu/wex/Commerce_Clause Article 1, Section 8, Clause 3 of the United States Constitution enumerates the power of Congress "to regulate commerce with foreign nations, and among the several states, and with the Indian tribes." The Commerce Clause, by extensions throughout more than a century of Supreme Court cases, is actually the basis for perhaps as much as 90 percent of all federal legislation on all subjects, including subjects not as noticeably related to interstate commerce as security trading. The SEC gained many of its current powers in the aftermath of the Great Depression, which has been taken as a negative example of what happens when there is too little government regulation of financial markets.

known 16y ago

From my experience I learned that there only 2 ways we can consistently make profits in stock markets. 1. Front running 2. Insider trading

yummyfajitas 16y ago
1 is just a particular variety of 2. (By the way, you've just restated the efficient markets hypothesis.)

nitrogen 16y ago

Can anyone point to examples of harm done by mostly-unregulated private trading of private companies? As an aside I found it amusing that all that's required to turn the year in the SEC logo from 1934 into 1984 is adding an L in the middle.

andylei 16y ago
before the SEC changed its disclosure rules, firms could release earnings to a select group of investors before it released them to the open market. if you were in this select group, you were basically guaranteed trading profits. theoretically, facebook or twitter could do the same.