Monday, January 3, 2011

Stock Trading in Private Companies Draws S.E.C. Scrutiny


Saeed Khan/Agence France-Presse — Getty Images
A red-hot trading market has developed in the shares of the world’s leading social networking companies: Facebook, Twitter, Zynga and LinkedIn. What is unusual is that none of the companies are listed on a public stock exchange. Each is privately held.
Now, the Securities and Exchange Commission wants to learn more about the business of these stock trades. The agency has sent information requests to several participants in the buying and selling of stock in these four companies, according to two people with direct knowledge of the inquiry who requested anonymity because they were not authorized to speak about it.
It is unclear exactly what has piqued the agency’s interest. An S.E.C. spokesman declined to comment on the matter. But the S.E.C.’s interest comes as a crop of new exchanges is popping up to facilitate these trades.
At the same time, Wall Street brokerage firms have begun forming investment pools to buy these companies’ shares.Over the last year, several private exchanges have matched up buyers and sellers of shares in these fast-growing companies. Though the volume remains thin, the number of transactions is increasing each month.
Driving this activity is the social networking phenomenon, which has created the hottest, and most hyped, segment in Silicon Valley in years.
Businesses like Facebook, the social networking leader, and Zynga, a popular maker of online games, already generate hundreds of millions of dollars in revenue. Twitter has more than 150 million users, and just received $200 million in venture financing. LinkedIn, another social networking site, has become a Facebook for professionals.

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