* The 500-investor threshold being examined
* Use of special vehicles to avoid 500 also eyed
* SEC's Schapiro says can't predict outcome
(Adds law professor comment, edits throughout)
By Sarah N. Lynch and Clare Baldwin
WASHINGTON/NEW YORK, April 8 U.S. securities
regulators are conducting a broad review of share issuance
rules for private companies, including the 500-shareholder
threshold meant to mark the transition to public ownership.
The Securities and Exchange Commission review could make it
easier for private companies to raise capital while delaying an
initial public offering and the accompanying increase in
"We are approaching it with an open mind," SEC Chairman
Mary Schapiro said of the policy review on Friday to a group of
business journalists. "I really can't predict what, if any,
change will come out of that."
The issue has jumped into the spotlight recently as Wall
Street banks and electronic markets offer investors a chance to
buy and actively trade stakes in hot Internet companies such as
Facebook and Twitter before they go public.
An April 6 letter from the SEC to House Oversight Chairman
Darrell Issa sets out the issues involved in the review but is
careful not to come to any conclusions.
The use of special purpose vehicles, or SPVs, that
aggregate investors and help avoid the 500 threshold, is among
the issues being examined, as is the increasingly active
trading of private shares on electronic platforms.
SEC rules on what constitutes a "general solicitation" for
investors, banned for private placements, is also under
(For a Breakingviews column on the possible impact on venture
capital firms, click: [ID:nN08215500])
Goldman Sachs (GS.N) had planned to offer both U.S. and
foreign investors a chance to own shares in Facebook through an
SPV. Later in January it opted to limit the offering to foreign
investors, citing "intense media coverage" of the deal.
The effects of any SEC rule changes could be mixed. Raising
the 500 investor threshold, for example, could be offset by
tighter rules on SPVs.
The rules also affect public companies that seek to "go
dark" by returning to private ownership status.
"Many of the rules we have in place governing the offering
process are decades old," Schapiro said on Friday. "It makes
sense for us ... to take a look at whether our rules have kept
pace with changing market dynamics."
Schapiro's letter to Issa showed an SEC wrestling with the
needs of private companies to raise capital against the
investing public's right to get the information they need to
make informed decisions.
"I think all Mary Schapiro is really saying is that she
wants a more realistic counting system that is less susceptible
to manipulation," said J. Robert Brown, a professor at the
University of Denver Sturm College of Law.
(Reporting by Sarah N. Lynch and Clare Baldwin; Additional
reporting by Chris Baltimore in Dallas; editing by Gerald E.
McCormick and Tim Dobbyn)