Hedge funds and venture capitalists are back on the radar of the Securities and Exchange Commission. This time, they are being probed for trading shares in the hot, pre-IPO tech companies that are bursting on to the market with valuation in excess of a billion dollars.
The SEC has a number of industry-wide investigations going on at the moment, including investment advisers, investment bank interns and hedge fund fees. This particular investigation into off exchange selling of shares seems unlikely to reach the $1 million minimum for an SEC whistleblower award qualifying enforcement action.
Last month, the SEC fined Sand Hill Exchange $20,000 for its illegal derivative offerings. Sand Hill billed itself as the New Wall Street, allowing you to trade pre-IPO companies on a fantasy stock exchange. Sand Hill was closed down for selling security-based swaps off exchange without a required registration statement. Dodd-Frank made their acts illegal when it was passed in 2010. Sand Hill has since returned the money to its users.
Nevertheless, this investigation seems to signal the SEC’s continued aggressive enforcement of transactions that threaten to harm investors outside of the confines of the traditional exchange and regulatory system.