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SEC Looking Into Trades of Private Shares

According to a report in the New York Times, the US Securities and Exchange Commission is said to be looking into the booming trade in privately held shares of popular social networking services, such as Facebook, Twitter, LinkedIn and Zynga.

According to the report in the Times, the SEC already sent ‘Information Requests’ to a number of participants in the trading of these four companies’ shares. The identity of the participants has not bet revealed.

Shares of privately held companies can be traded on private stock exchanges such as SecondMarket. The shares are generally sold by former employees of early investors in these companies. Only institutional investors or high net-worth individuals, those usually worth over $1 million, can buy the shares.

Many analysts say the reason behind the SECs enquiry may be the fact that once a company hits 500 shareholders, it must disclose financial information to the public, even if the company has not filed for an initial public offering.

Facebook and Twitter declined to comment on the news.

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