The U.S. Securities and Exchange Commission (SEC) has launched a probe into the burgeoning “black market” of hot, privately held tech stock. The SEC investigation comes after the regulator observed a recent boom in the trading of such shares that was being conducted privately and thus outside the regulator’s rules.
The investigation is also examining the trend of companies selling employee-owned shares of private companies via complex derivatives transactions.
The so-called “middleman” companies have been offering to trade stock with the employees of private tech companies, which the SEC feels could be unlawful under the Dodd-Frank Act of 2010, which mandates that investors can only trade share swaps on a national securities exchange that hold a registration statement from the SEC.
According to research conducted by the Wall Street Journal there are currently 78 privately held, venture-capital-backed companies worth $1bn or more, totalling $310bn. That represents an increase of almost 50 percent. The rise in the number of valuable companies has created a market in share swaps due to the amount of privately held shares available for sale and increased investor awareness of the hot tech stocks.
Uber, valued at $40 billion and Airbnb, valued at $24 billion are two of the most actively traded and involved in the controversial derivatives products.
The SEC has thus far refused to identify the ‘middleman’ firms involved in the transactions.