
S.E.C. Scrutinizing Stock Trading in Facebook and Twitter  - KeepTalking
http://dealbook.nytimes.com/2010/12/27/stock-trading-in-private-companies-draws-scrutiny/?partner=rss&emc=rss
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Umalu
Traditionally there are three reasons to go public: (1) need capital, (2)
founders or VCs need to cash out, or (3) have 500+ stockholders. Reason (3)
has driven some otherwise cash rich companies with somewhat patient VC money
to go public, and I expect it is what the SEC is looking at here. If pools try
to buy, the SEC may look through the pool structure and count each of the pool
investors as a separate investor, making it hard to keep under the 500 holder
limit. A few non-tech companies that do not need capital have recently gone
the "perma-private" route, with private exchanges set up to facilitate
trading, but that is difficult to do, especially as more and more employees
join up and expect stock and push on the 500 holder limit.

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sgift
I tried Google but didn't find anything: Is (3) just a rule of thumb, i.e.
"more than 500 is unmanageable without going public" or is there a law in the
USA which forces companies to go public if they have more than 500 holders?
And - why would there be such a law (if it exists)?

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jonknee
The reason it exists is so companies don't end around the SEC and create
unregulated stock markets. Once you get 500 shareholders you don't need to
offer shares to the public, but you do need to release financials like you
have (AKA send them to the SEC).

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Umalu
This is correct. Once a company has to go to the trouble of producing
quarterly and annual financial reports and filing them with the SEC and making
them available to the world, most companies conclude they might as well do a
real IPO and get some pop from building a market in their stock.

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jdp23
Valuations in the thinly-traded, easily manipulated secondary market are used
to justify venture investments and acquisitions. If the SEC starts finding
irregularities and clamping down, that's one more sharp pointy object bursting
the bubble ...

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Dilpil
What does being a public company mean?

Part of it is having to spend a large chunk of your profit on audits, which
supposedly certify that your company is healthy and non fraud committing.

This certification was granted to Enron, Lehman Brothers, and many other
companies that absolutely did not deserve it.

The S.E.C. should take this as an opportunity to learn something about what
investors really want. It isn't regulation. Its profit and growth.

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yummyfajitas
The audit requirements have absolutely nothing to do with preventing companies
making risky bets (e.g. Lehman) from going public.

They are there primarily to make sure the company actually exists and is
roughly what is represented to investors. The point is to make sure Lehman is
actually a major global investment bank rather than 3 guys + a website in Long
Island + a bank account to accept cash wires.

