The SEC is investigating all those private stock markets where people keep buying up Facebook stock and driving its valuation into the tens of billions of dollars.
Why? Probably because there’s not much transparency in those markets.
But some lawyers tell the New York Times it could be the first steps toward forcing Facebook to IPO:
It is uncertain what exactly the S.E.C. is looking into, but several securities lawyers say it could relate to understanding the number of shareholders at these companies.
That would be relevant to regulators because Facebook and other start-ups have a reason to keep the number of shareholders to under 499. If they had 500 shareholders, S.E.C. rules would require them to disclose their financial results to the public.
The pooled vehicles being set up to acquire Facebook stock, for instance, could push the company’s shareholder count above 499 if the S.E.C. counted the number of investors in the funds.
The SEC’s 500 shareholder limit forced Google to IPO before it wanted to back in 2004.
The 500 shareholder limit just about the only way we’ll see a Facebook IPO in 2011. The company has been taking steps to prevent crossing that limit. It stopped giving employees actual stock some time ago.
(Now they get weird restricted stock units that convert to stock eventually.)
Facebook really does not want to IPO. In fact, if the company turns profitable soon enough, there’s a chance that the company could buy out investors and never go public.
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