SEC Now Investigating Brokers Working With Private Companies

SEC Now Investigating Brokers Working With Private Companies
By U.S. Government [Public domain], via Wikimedia Commons

SEC Now Investigating Brokers Working With Private Companies

 Sources have revealed that the SEC is close to bringing a case against Felix Investments. The Manhattan based brokerage firm was known for its involvement with tech startup’s trades, particularly in the social networking sector. Such companies have become much more commonly traded in recent years. It appears that the company will be charged with soliciting investors in a way that contravenes securities laws. Felix was involved in obtaining investors for social networking platforms such as Facebook and Zynga before the companies were to be traded publicly. The strategies employed by the company were seen as overly aggressive, emails sent directly to potential investors declared Twitter a “must buy” and said it would “continue to trade up in price rapidly”.

Indications suggest that another firm involved in exchanging these types of privately held shares was close to settling with the SEC. Sharepost had set itself up as an exchange house for privately held shares of this type but had not officially registered as such until months after it was trading. This had raised problems for regulators who sought compliance from the company. Regulators have been keeping a closer eye on trading in this sphere in recent years. Former employees and early investors looking to liquify their appreciating stocks in these companies were often the sellers with investors looking to get in as close to the ground floor as possible the buyers. The SEC expressed an interest in the market in 2010 and has been investigating its workings since.

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Private share have become a much more commonplace investment in recent years particularly in the tech sector. Many large web based businesses chose this as the route to ensuring adequate investment while delaying public trading until the company was seen as worthy of it. In many such cases web based industries such as Facebook and Twitter have had problems convincing investors that they can successfully turn their large user bases into actual revenue. Both companies have had problems balancing the preferences of their users, particularly in relation to ads, and the need to create revenue streams in their business plans. A second and perhaps more explanatory reason for the increase in private trading was the difficulty in trading publicly during the financial crisis. It would have been impossible for any company to raise as much money during that period than they could possibly now with Facebook’s valuation at dizzy heights.

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