The SEC is understood to have subpoenaed a number of firms in connection with an investigation into the sale of private pre-IPO technology stocks, following an increase in the trading of these private shares.
Shares of private tech start-up companies are generally issued to investors and insiders who hope that the company will eventually launch an initial public offering and that the private shares will dramatically appreciate in value. Because the shares can explode in value once the IPO occurs, they are extremely desirable. Moreover, as tech companies remain private for longer periods of time, there is a greater desire among the companies and their employees to seek to monetize the value of pre-IPO shares. Thus, a market has been created to provide a vehicle for trading in pre-IPO shares.
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