WASHINGTON The top U.S. securities regulator is taking a hard look at private offerings of hot tech companies to ensure that investors in this murky corner of global capital markets are getting a fair shake.
Mary Schapiro, chairman of the Securities and Exchange Commission, told the Reuters Future Face of Finance Summit on Tuesday that her agency has been reviewing decades-old U.S. rules on private placements.
The issue has jumped into the spotlight as Wall Street banks offer their clients a chance to score stakes in hot Internet companies before they go public.
The most high-profile example has been Goldman Sachs (GS.N), which had planned to offer both U.S. and foreign investors a chance to own shares in Facebook through private placements.
Goldman Sachs, later in January, opted to limit offerings to foreign investors, citing "intense media coverage" of the deal.
"Generally we have been interested for some time, predating the more recent interest of the media in this issue, the question of pre-IPO trading," Schapiro said.
"Of course the issue is whether investors have access to financial information about the companies of stocks they are trading to make reasonable and rational decisions about investing."
Without commenting on a particular company, Schapiro said the SEC is looking at the issue, both to ensure the trading is "appropriate" and also at whether the rules on private offerings may be out of date. "It's an active area of review," she said.
ELECTRONIC MARKET REVIEW
The secondary market for private company shares has heated up this year as leading Internet companies, including Facebook, Zynga and Twitter, have been in no rush to hold initial public offerings.
Although Goldman was not asked by the SEC to restrict its Facebook offering to foreign clients, some outside experts speculated that Goldman retreated from its plans because the widespread media attention could potentially constitute a general solicitation and thus violate U.S. securities rules.
More recently, the New York Times reported that JPMorgan Chase & Co (JPM.N) raised $1.22 billion for a new fund to invest in the social media sector, a figure well above its target goal of $500 million to $750 million.
The SEC has also begun looking into electronic markets that match buyers and sellers in privately held companies.
SecondMarket, one of two main online platforms for private shares in companies like Facebook and Twitter, confirmed earlier this year it received a request from the SEC for information surrounding "pre-IPO pooled investment funds."
Schapiro declined to comment on whether the SEC is weighing any enforcement action in the area of private placements. But she said the SEC is looking generally at the rules to see if they are out-of-date in today's world of fast-paced media.
"Do the rules that have been in place for decades still make sense given the way markets operate, the way publicity is generated... in real time through all sorts of social media?" Schapiro asked. "Do our rules need to be updated in light of all that?"
Senator Jack Reed, who chairs the Senate's securities subcommittee, told the Reuters summit he does not believe the firms involved in these private offerings have broken any laws, but their actions do raise policy issues.
"This look like to me very, very bright and creative people trying to figure out how you do a public offering without all of the disclosure of a public offering," he said. "I think they are talented and scrupulous enough in terms of their legal analysis and their other analysis, but this raises policy questions."
(Reporting by Sarah N. Lynch, Rachelle Younglai and Ann Saphir; Editing by Tim Dobbyn)