In late December, the media jumped all over SEC, which had started investigating trades of privately-held shares - like social network companies Facebook, and Twitter - along with several other high-profile companies.  Today, the SEC is back probing that market, this time for potential conflicts of interest.

According to the WSJournal, it's simply another phase of a broadening probe by the SEC.  The probe began in late 2010 and gained speed after Goldman Sachs struck its $1.5bn deal with Facebook.  Trades handled by SecondMarket Inc., SharesPost Inc. and other market makers specializing in privately held shares are conveying eye-popping valuations on some companies while disclosing little about their financial results.

These market makers connect holders of private-company stock, often former employees, with potential buyers. SEC officials, this time around, reportedly are concerned that middleman could cause conflicts of interest, especially given the challenges of ascribing a fair value to privately traded shares.

SEC officials also believe some of the firms promoting stock-trading in private companies should be registered as broker-dealer operations but aren't.

"This marketplace is like the early days of the 'junk'-bond market, where companies are finding creative avenues to raise capital." -- Lou Kerner, social-media analyst at Wedbush Securities.  The junk-bond market allowed start-up firms with thin track records to tap the capital markets, but it encountered growing pains that included scandals in the late 1990s.

SecondMarket and SharesPost reportedly have been communicating with the SEC about their business models and recent transactions.  They've told agency officials their operations include numerous safeguards for investors, including compliance departments.  Investors using their operations are knowledgeable and do their own due diligence, the exchanges also have told the SEC.

SecondMarket already is a registered broker-dealer, though SharesPost is not - and doesn't need to be, according to its CEO David Weir. He described the firm as an "information portal" that makes money from fees it charges investors or buyers. Its "transaction specialists" collect sales commissions from sellers for helping buyers and sellers agree on a price and sign contracts agreeing to a sale.  He adds that the company goes to "great lengths to provide our members with as much context as possible so they can make informed investment decisions."

For further details, go to:   [IT World, 2/23] and [WSJournal, 2/23]