A healthy trading market has emerged around the shares of some well-known private social networking companies–Facebook, Twitter, LinkedIn (which has since filed for an IPO) and Zynga, the creator of online games such as FarmVille. This secondary market is allowing investors to easily trade the shares of private companies, a development that has provided a simple funding and investing opportunity for private companies and their would-be investors.
It’s also gained the scrutiny of the Securities and Exchange Commission (SEC). In December 2010, the New York Times reported the SEC had sent information requests to unnamed participants in the secondary market for trading shares of the four aforementioned social networking companies. The commission also is taking a look at the exchanges themselves, which act as neutral links between buyers and sellers. It has remained silent on the investigations, but observers speculate that a main point of focus for the agency may be Section 12(g)(1) of the Exchange Act, which imposes the reporting requirements of a public company on companies with more than 500 shareholders of record.
