Watchdog expands probe into private firms' share dealings
Published 24/02/2011 | 05:00
AMERICA'S financial watchdog has expanded its inquiry into the growing market for buying and selling shares in private companies, which has led to soaring valuations for internet groups such as Facebook and Twitter.
The US Securities and Exchange Commission is thought to be studying the potential for conflicts of interest among firms trading in the stock of these companies.
It is seen as an attempt to expand an investigation into a market that has been beyond the supervision and control of regulators and securities firms.
Analysts have warned that the market -- in which middlemen find buyers for the stock of private companies, usually owned by their employees -- is contributing to a frenzy among investors seeking stakes in internet start-ups. The SEC is believed to be concerned that the trades could amount to conflicts of interest, particularly as it is hard to place an accurate valuation on companies that do not disclose key information.
The expanded inquiry suggests that the SEC believes that some firms offering stock-trading services in private companies should be registered as broker-dealer operations, but are not. Licensed securities firms are subject to the regulation of financial watchdogs.
The investigations were sparked by a deal last December between Goldman Sachs and Facebook. This allowed the i bank's non-American clients to buy about $1.5bn of shares in the social networking site. The move avoided the need for Facebook to release important financial details; US rules dictate that companies with at least 500 shareholders must reveal certain key figures.
After the Facebook deal and its $50bn valuation, huge price tags have been set for several young web companies, including Twitter at $10bn.