US regulators probe pre-IPO sales amid buying frenzy

July 06, 2015 09:08
The Securities and Exchange Commission is targeting a slew of pre-IPO share sales amid surging valuations of private technology companies. Photo: Internet

US securities regulators are investigating whether hedge funds and other investors are improperly selling private technology stocks amid a buying boom.

The Securities and Exchange Commission (SEC) is looking into a slew of pre-IPO share sales after surging valuations of private tech companies.

It's also examining a recent rise in firms selling employee-owned shares of private companies through derivative transactions, according to the Wall Street Journal.

It says in some cases, the sale of employee shares through such derivative transactions is prohibited by the companies.

Such derivative deals could be in violation of the Dodd-Frank Act of 2010, which makes it unlawful for most individual investors to trade swaps unless the transaction takes place on a national securities exchange with a registration statement from the SEC.

Swaps are contracts in which two parties agree to exchange payments based, in this instance, partly on the value of private companies.

The probe follows concern about activity in the burgeoning private market for tech shares of established companies.

Startups worth more than US$1 billion have raised about U$15.5 billion in additional funds through the first half of this year, according to Dow Jones VentureSource.

On June 17, the SEC filed a case against Silicon Valley-based Sand Hill Exchange, which operated a website designed to allow people to buy and sell contracts related to the value of private companies and their securities.

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