S.E.C. Scrutinizing Stock Trading in Facebook and Twitter | Hacker News Reader

S.E.C. Scrutinizing Stock Trading in Facebook and Twitter

dealbook.nytimes.com

29 pointsKeepTalking12 comments

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.

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)?

ever heard about Wikipedia?

http://en.wikipedia.org/wiki/Public_company

http://en.wikipedia.org/wiki/Securities_Exchange_Act_of_1934

The 500 shareholders does seem to be written in law, however SEC seems to have the authority to make exemptions.

right answer, but I had to downvote you for being snarky.

thanks :)

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).

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.

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 ...

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.

something about what investors really want. It isn't regulation. Its profit and growth

and they got plenty of the two with Enron and Lehman. Until the music has ended, that is.

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.

The SEC isn't there to ensure profit and growth, the SEC is there is ensure investors aren't being defrauded.

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