I’ve been surprised with the level of activity on SharesPost and SecondMarket over the last year – more specifically, I’ve been surprised that the activity hasn’t drawn more scrutiny from regulatory bodies. While I think that giving liquidity to large private companies is theoretically a justifiable goal on market efficiency grounds, many people had questions about how the SEC would view these transactions, which by their nature encourage speculation in companies that have not gone through the exhaustive IPO process.
Today the SEC finally took some action against SharesPost, though by all accounts the action was relatively innocuous and will do little to stem investor enthusiasm in these new pre-IPO markets. The SEC announced fines for SharesPost and the CEO, but the total cost is only $100,000. For some context, J.R. Smith, a professional basketball player, was recently fined $25,000 for tweeting a picture of his girlfriend’s scantily clad behind. Insert comment about America’s priorities here. The complaint is particularly interesting if you want to get a peak into how SharesPost grew into what it is today, and it also reveals that SharesPost has been a registered broker-dealer since December of 2011, making the fines today something of a retroactive punishment.
In a sense, this is a huge victory for both SharesPost and SecondMarket – after a long investigation into the markets for shares of stock in private companies, the SEC did no more than slap SharesPost on the wrist, charging them what the NBA would charge one of their players for four tweetpics of a girlfriend in a thong. Maybe this is just the first step in formally eliminating the 500 shareholder rule, something many pundits have been speculating about since the Facebook IPO was just a glimmer on the horizon.