SEC to Investigate Facebook and Twitter Private Share Sales
SEC to Investigate Facebook and Twitter Private Share Sales
Posted 02/23/2011 at 4:18pm
| by Ryan Whitwam
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You've probably heard about all the crazy behind-the-scenes deals going on as investors buy and sell stock in sites like Facebook and Twitter. This system has traditionally been unregulated as it is taking place outside of the publicly traded markets. According to New York Magazine, it is looking like the SEC is about to get involved in order to investigate how these shares are being traded.
The Securities and Exchange Commission might have been tipped by the staggering valuations of Facebook ($84 billion as of now). Maybe it was the fact that these highly valued companies are going to be public sooner or later, and their trading practices have been completely unregulated so far. Either way, sources say that the SEC will be deciding whether the firms that trade this private stock need to be regulated as broker operations. That would mean oversight from the Financial Industry Regulatory Authority and the SEC.
This secondary market has proven a quick and easy way for companies to raise capital, but is it possible the valuations are getting out of hand. The SEC may just be concerned about possible effects on the stock market when these valuations are put to the test. Could this hurt future tech startup funding?
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Gezzer
February 23, 2011 at 8:30pm
Do internet start ups need to be regulated? More then likely.
As was mentioned before this is just a smaller repeat of the dot com bubble. This time at least the sites in question have a reasonable chance of turning a profit for investors.
Will regulation save investors who invest in internet start ups? More then likely not.
As the old saying goes "a fool and his money soon part ways". There's always going to be some little understood market that idiots pour huge sums into with no idea what the long term return is. Even after the results of the dot com bubble's bursting, there still seems to be people willing to do just that with internet startups. It'll be really interesting to see what the value is after an IPO on Facebook or Twitter.
Neufeldt2002
February 23, 2011 at 6:39pm
How on earth is facebook valued at 84 billion? It seems that every week there is a new valuation that is higher than the last. It seems to me that there is something fishy going on.
violian
February 24, 2011 at 11:57am
There's no way Facebook can be valued at $84 billion. The valuations mostly stem from the number of registered users. Facebook knows that a good percentage of their millions of users are phony users/accounts. But that's undisclosed because it would hurt Facebook's valuation. My speculation is Facebook is doing everything it can to make it appear Facebook is a very valuable company - say for instance $84 billion when they know the company is actually only worth $15 billion. Then they're going to sell it off or go IPO to rake in $84 billion. So if the company is actually only worth $15 billion, then essentially, they'll have had duped their investors $69 billion.
someuid
February 23, 2011 at 4:35pm
Yes, it will hurt future tech startup funding, but this is a good thing. Invenstors need to be forced into really examining their investments, not blindly throwing money at this and that with visions of grandeur in their heads.
And the ones who sell these stocks - like Goldman Sachs - need to be standing in the bright spotlight that is, hopefully, SEC's regulation. If not, Goldman will be happy to sell you the stock of your dreams without a care in the world as to whether you are making a good, sound decision or not.
This is good because those startups that really have a good idea will get funding, and those startups that are just plain stupid won't get any funding, resulting in less waste.
I remember back during the dot com crazy when a new startup got hundreds of millions of dollars for their revolutionary on-line store front. The owners were pocketting huge salaries and paying developers oodles of cash. Their grand plan - selling designer chairs on-line. Fools.
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