SEC Investigates Private Share Trades

There seems to be more behind the scenes of Facebook and Twitter than some simple social conversation. The Wall Street Journal reports the SEC is investigating potential conflicts of interest for buying and selling shares of private companies such as Facebook and Twitter.

The probe is in its early stages, but the SEC has red-flagged suspicious activity happening behind the scenes of these private companies and beyond the reach of regulators and traditional securities firms.

The probe began late last year and picked up pace after Goldman Sachs struck a deal with Facebook, allowing the investment company’s non-US clients to buy $1.5 bn worth of stock in the social networking company. SEC officials are concerned this outside investment, along with former employees being named as potential buyers of stock in the company, could cause conflicts of interest, ‘especially given the challenges of ascribing a fair value to privately traded shares, according to a person familiar with the situation,’ wrote the WSJ.

In a statement to the WSJ, Vincent Molinari, founder and CEO at GATE Technologies, a newer entrant into private-share exchanges said: ‘We need transparency in this marketplace. We need the same monitoring and tool sets that the institutional marketplace has come to rely on for credibility and trust. This market is getting bigger, stronger and faster.’

SEC officials also believe some of the firms promoting stock trading in private companies should be registered as broker-dealer operations. Licensed securities firms are subject to oversight and inspection by the Financial Industry Regulatory Authority and the SEC.

Source: Wall Street Journal

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