SEC Likely to Bar Future Facebook-Style Transactions

Do you think the Goldman Sachs/Facebook deal was too good to be true? Let’s face it: finding a way to give your best investors $1.5 billion in access to the hottest pre-IPO company in the market is pretty amazing. And since “too good to be true” is usually followed by “not for long,” the SEC is already taking a look at whether the disclosure rules for privately held firms need to be rewritten, according to the Wall Street Journal.

The SEC is still early in the process, but recent transactions by Facebook and Twitter have prompted the government officials to explore the existing regulatory framework, a trend that’s likely to continue with the likes of SharesPost coming into the mix for pre-IPO secondary transactions among accredited investors.

According to the Wall Street Journal:

The review is at an early stage, these people cautioned, and SEC officials looking at the recent deals haven’t concluded that any of them run afoul of the 47-year-old rules governing private companies. The rules require firms with 500 or more shareholders of record in a given type of stock to publicly disclose certain financial information. The requirement is designed to protect investors from risking money on companies that say little about their operations and performance.

It’s still too early to tell what the outcome will be, but what is clear is that change is afoot, especially with the increasing amount of action in pre-IPO companies for which a liquidity event is highly anticipated. This is a story that will unfold throughout 2011, and it will have profound implications for the IPO market.

[Source: Wall Street Journal]



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