Dan Primack

The latest on private equity, M&A, deals and movements — from Wall Street to Silicon Valley

SecondMarket: The SEC has not asked us for anything

December 28, 2010: 1:55 PM ET

The SEC "wants to learn more" about secondary stock trades in private companies like Facebook, LinkedIn, Twitter and Zynga, according to a report in today's New York Times. No specifics as to the inquiry's primary goal, although TechCrunch believes that it concerns the lack of disclosure endemic to such transactions.

Secondary sales of company interests have been around for years, as a subset of a larger market that focused mostly on buying and selling partnership interests in venture capital and private equity funds. Last year, however, a group called SecondMarket brought direct secondaries to the accredited investor masses, by launching an online marketplace whereby private company shares could be traded by either individuals or firms.

SecondMarket is prominent in the NYT story, but company spokesman Mark Murphy tells Fortune that it hasn't received any request for information from the SEC  -- either formal or informal. Moreover, he claims to have apprised the NYT reporter of that fact several days ago, and that he was "disappointed" to see it missing from the paper's final story.

[UPDATE: SecondMarket now has received an inquiry]

The Times didn't explicitly say that SecondMarket was one of the four firms to have received an SEC letter, but you couldn't blame a reader for inferring that it was. In fact, take a look at TechCrunch's lead:

The Securities and Exchange Commission is asking questions about private stock markets like SecondMarket and SharesPost. The private markets have recieved information requests from the SEC, reports the New York Times.

What's important to understand here is that there are many different types of players in the direct secondary marketplace. Some, like SecondMarket, are registered broker-dealers. Others farm out the broker-dealer duties to third parties (although it's unclear how the actual marketplaces are then compensated). Then there are private placements between limited partnerships, including some formed specifically to invest in the stock of a particular company.

I'm not saying that the SecondMarket structure is any better or worse than that of its competition (or customers). I'm just saying that, for now, the SEC hasn't expressed an interest in them.

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About This Author
Dan Primack
Dan Primack
Senior Editor, Fortune

Dan Primack joined Fortune.com in September 2010 to cover deals and dealmakers, from Wall Street to Sand Hill Road. Previously, Dan was an editor-at-large with Thomson Reuters, where he launched both peHUB.com and the peHUB Wire email service. In a past journalistic life, Dan ran a community paper in Roxbury, Massachusetts. He currently lives just outside of Boston.

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