US SEC will probe Facebook and Twitter private share sales

PRIVATE SALES of shares in Facebook and Twitter are being probed by the US Securities and Exchanges Commission (SEC).

The buying and selling of private shares - shares that are not listed on public stock exchanges - has become big business, with the social notworking outfits Facebook and Twitter using the practice as a means of generating cash. Now the dot.com rich club is being investigated by the SEC to see if those involved in peddling private shares have followed regulations to maintain stock trading transparency rules.

Facebook recently struck a deal with Goldman Sachs to sell $1.5 billion of its stock to the investment bank's non-US clients. That deal, according to the Wall Street Journal, served as the catalyst for the SEC investigation, which is looking into whether those investment banksters who set up the deals between companies and buyers have a conflict of interest.

The middlemen in such deals are known as private share exchanges and the rules governing them are vague. One firm, Sharespost isn't even a licensed securities firm but is still allowed, legally, to act as a broker.

Like all shrewd financial institutions, outfits such as Sharespost collect a fee for every transaction, regardless of whether the stock price tanks. That is the reason why the SEC is keen to investigate whether private share exchanges offer more information than usual to get a sale through the door.

Earlier this year, Goldman Sachs' sale of Facebook shares to its wealthy non-US clients valued the firm at $50 billion. However Sharespost said that the privacy shredding website is actually worth somewhere in the area of $84 billion based on "a recent contract".

Private stock exchanges are seen as another way for startups to get funding, however if the SEC finds that the rules were bent to increase the sales of shares, then privately held dot.com firms like Facebook and Twitter might have to look to the public stock markets to raise cash. µ