Facebook fired an employee for violating company policy when he purchased Facebook shares on the secondary market.  While details about the purchase are somewhat murky, implications of insider trading are loudly resonating - so much so, that industry experts anticipate the SEC will expand its scrutiny of trading in Facebook, Twitter, and other high-flying private companies.  Apparently, the transaction also violated company policy.

The employee, Michael Brown, who worked in corporate development at Facebook, admits to buying "Facebook stock on the secondary market in early September 2010, and I did so with the absolute best of intentions and only because I believe in Facebook.”

According to his profile on LinkedIn, Mr. Brown had been employed at Facebook since April 2009.  Before that he worked at Foundation Capital, a Silicon Valley venture investing firm.

Mr. Brown’s ouster was first reported by TechCrunch, which initially reported that Mr. Brown bought the shares ahead of a $1.5 billion financing round led by Goldman Sachs in January.   However, this past Friday morning, TechCrunch updated the story to say that Mr. Brown may have bought the shares in September.

In an apparent reference to that report, Mr. Brown said: “False and damaging information has been published about my actions.”  He added that he had no knowledge of the Goldman Sachs deal “until it appeared in the press in January 2011.”

        The Firing, and Scrutiny of SecondMarket and SharesPost.   Facebook reportedly fired Mr. Brown a few weeks ago.  Professor Stephen Diamond, who teaches securities law at Santa Clara University, said that many of the legal restrictions on insider trading applied equally to private and public company shares.  “If the employee had material information which he did not share with the seller, he could be charged with violating the law.”  

Perhaps of greater relevance, is the belief that the incident may encourage the SEC to bring further scrutiny to exchanges like SecondMarket and SharesPost.  “This could be evidence that the control procedures in these markets are not sufficient."

For further details, go to:    [NYTimes, 4/1/11]