SEC Decides It Might Be a Good Idea to Investigate How Facebook and Twitter Are Trading Shares
We're not sure what exactly prompted the SEC toward investigating secondary markets, which allow private companies like Facebook and Twitter to buy and sell shares without revealing any significant financial information.
Context & Ripple Effects
Two months ago, SecondMarket publicly told Fortune the SEC had made no requests of it (the SEC has not asked us for anything) — a striking claim given that its marketplace was where shares of Facebook, Twitter and other private companies were changing hands without any meaningful disclosure. With this story, that no-contact posture appears to be over: the SEC is now looking at exactly those secondary markets.
Why now matters: the pre-IPO share trade had become liquid enough to attract broad buyer interest while remaining almost entirely opaque — buyers were pricing Facebook and Twitter on reputation, not financials. A regulator deciding that mismatch is worth investigating is the first structural check on a market that had grown up unsupervised.
First-order effects
- SecondMarket and comparable platforms running these private-share venues move from operating below the regulator's radar to being subjects of an active SEC inquiry, with their listing standards and buyer-suitability practices suddenly open to examination.
- Buyers of pre-IPO Facebook and Twitter shares — often employees and early holders selling — face the immediate prospect that trades may soon require more verified financial disclosure than the 'no significant financial information' status quo provides.
Second-order effects
- Facebook and Twitter gain a decision point: supplying fuller financials to these markets would improve price discovery but erode the privacy they currently enjoy as private companies, so expect pressure to tighten share-transfer restrictions instead.
- Any platform or broker competing for private-company share flow now has an incentive to volunteer disclosure safeguards ahead of SEC findings, turning compliance posture into a competitive differentiator in the pre-IPO market.
Third-order effects
- If the probe hardens into rules, the opaque private-secondary market becomes a regulated venue class — formal disclosure requirements would narrow the information gap between late-stage private trading and public listings, reshaping when and why companies stay private.
- A confirmed SEC interest in who is buying employee-held private shares establishes a precedent that hot private markets are systemic enough to warrant standing oversight, not just post-fraud enforcement.
The trend: Private-company share trading is outgrowing its disclosure vacuum, pulling securities regulators into policing pre-IPO markets they had largely left unexamined.