When a privately owned company experiences phenomenal success, attention floats its way from every direction, including governmental authorities. Recently, several social networking sites gained some of that attention and were asked to produce financial information that those authorities could analyze and determine whether the financial activity was legitimate, from their perspective.
Because Twitter and Facebook are both privately invested companies, they are afforded the opportunity to keep their financial information from being disclosed. This is attractive for investors especially, since there are essentially millions of dollars transacted with various lucrative deals. Those privately owned companies also get to avoid some of the stiff rules and regulations that are a concern for companies that exchange publicly. They do have a set of compliance rules, but there are starked differences in the way that the information has to be reported to governmental authorities. However, this financial anonymity also proposes a set of challenges that the social networking companies are both now facing.
Recently, concerns from The Securities and Exchange Commission prompted it to begin analyzing the way shares are privately traded with Facebook and Twitter. Interested investors, usually consisting of early investors or former company employees, go through websites like SharesPost to conduct their private exchanges. For private companies, investors are not difficult to find, and a successful privately-owned company never has a shortage of them.
What prompted the query from the SEC was the surge in share trading in the month of November. Some activity included substantial sales from a venture capital firm, which soon after saw Facebook’s prices surge and trading volume spike significantly. In the current month of December, Facebook’s valuation had risen almost 25%, to over $56 billion with its transactions on SharesPost. The SEC discovered this information, and promptly launched queries to the social networking site to investigate this recent activity.
