Welcome to SharePost, an online marketplace for private investments, and SecondMarket, the leading trading exchange handling transactions in privately-held companies.  Of course, you already know: 

• about the red-hot market for shares of privately-held social networking companies, like FaceBook; 
• that these private companies now may need to go public;
  
• that the SEC, alert to all the excitement and frenzy, wants to learn more about the business of these stock trading venues; 
• that Goldman Sachs has become a FaceBook investor. 

See next blog post for C-I's discussion of the last 2 bullet points - re: SEC, Goldman Sachs. 

    1.  Trading in Privately-Helds.   Technology start-ups in Silicon Valley are hot and sexy - particularly FaceBook, Twitter, LinkedIn.  Though they remain private, these companies's shares are changing hands.  From employees or investors who want to cash out their holdings, to buyers who are not waiting for an eventual IPO, if one ever comes about. 

Private exchanges differ in that they take shares from sellers or companies and actively find buyers, a process that can take several weeks.  Recently, SecondMarket and SharesPost have been offering auctions of private-company stock to simplify the matching process.  Before the emergence of such exchanges, founders or employees of start-ups had fewer options for selling before a public offering.  They typically sold shares to investors via opaque deals arranged by brokers, known as private placements.

Trading in shares of Facebook has been particularly strong in the past month.  The surge began after a big transaction in November, when venture-capital firm Accel Partners, an early backer of the social-networking firm, sold less than 15% of its stake for $517 million - which would value Facebook at $35 billion. 

Soon after the sale, Facebook's trading volume and price surged on SharesPost and SecondMarket;  in the past month, FaceBook's average valuation has risen between 12% and 25%, depending on whether you're asking SharesPost or SecondMarket.  Another factoid:  In 2010, Facebook reportedly accounted for 48% of private-company transactions on SecondMarket and 40% of those on SharesPost. 

Facebook Chief Executive Mark Zuckerberg has said he's in no hurry to go public.  In September, early Facebook investor Peter Thiel told Fox Business News the company wouldn't trade publicly until 2012.

    2.  Prospect of Exceeding SEC Limits on Number of Owners.   As trading increases, some companies are taking steps to monitor or curtail it.  Unrestricted trading could lead them to bump up against SEC rules that limit the number of owners on a closely held company to 500.  Beyond that, a company must disclose more financial data.

Facebook has taken several steps to curtail the private trading.  In 2007, it stopped issuing stock options or shares to new employees, instead giving them restricted units that won't become stock until Facebook goes public.  Nevertheless, trading of Facebook shares in the private markets is vigorous.  On 12/17, SharesPost completed an auction for 165,000 Facebook shares, which apparently was heavily oversubscribed. 

Facebook also has tried in the past to help employees who want to take some money off the table - e.g., a program last year enabled employees to sell at least $100 million of shares to Russian investment firm Digital Sky Technologies, which also invested $200 million directly in Facebook.  In April, Facebook forbade employees who hold shares to cash out to other investors.  The move was designed "to better comply with insider trading laws and to protect the interests of the company and its employees and shareholders," a Facebook spokesman said.  But the company can't stop former employees, early advisers or private investors who own shares from selling them.

For further details, click onto these source documents:  

• [WSJournal, 12/28, Hot Trade in ...];
  
• [NYT Dealbook, 12/28, Share Rules...];  
• [NYT Dealbook, 12/27, Stock Trading ... SEC Scrutiny] 
  
• [NYT Dealbook, 1/3/11, Goldman Offering Clients...]