Mr. Silbert. (Photo: http://www.flickr.com/photos/docsearls)

SecondMarket was having a pretty good week. On Tuesday came a flurry of articles about the startup's crowdfunding-flavored partnership with Angellist, and just yesterday, CEO Barry Silbert announced that Tennessee's First Advantage Bank was using the service to go private while remaining open to investors. He called the move "validation of our model."

Today, according to a post on SecondMarket's blog, several employees got the ax as part of "org changes."

To his credit, Mr. Silbert takes responsibility for the layoffs:

"I admit it, I screwed up. While the transition of SecondMarket from a telephone broker of illiquid assets in 2005 to the technology-driven reinvented stock market that we are today has been quite successful, I have done a poor job managing our cost structure during this transition."

Consequently, he added, "there are a number of high quality, hard-working SecondMarket family members who are now looking for their next challenge." If only there were some way to monetize euphemisms, Silicon Alley would be swimming in cash.

But Mr. Silbert wouldn't want to leave you with the impression that the company is in trouble. "I remain extremely optimistic about SecondMarket’s future and the important role we plan to play in reinventing the stock market and redefining the modern company," he wrote, adding that the company has $25 million in the bank and "an expected break-even bottom line" within sight. Rather, "we have decided to double down on what is working, eliminate any unnecessary costs and get our company back to the lean, mean, high performing organization that we once were before hubris took over."

The company also went through a round of layoffs in March 2012, thanks to the Facebook IPO.

SecondMarket declined to comment further to Betabeat, so we’re not sure how many were let go. (Update: Valleywag says as many as 40.) Let’s hope those “smart, capable people” are at least getting glowing references.

Got any more info? You know what to do: tips@betabeat.com

Hardware and IT company Nimble Storage was the second hottest company on the platform in terms of investor interest, while Good Technology placed in the top five for the second consecutive quarter. Getable and Transcriptic, meanwhile, two companies included in SecondMarket's new partnership with AngelList, were among companies gaining new traction on the platform.

Also in the report: Software and consumer electronics firms accounted for a combined majority of companies the private stock market in 2012, as the platform, which first gained widespread attention as a favorite platform for trading pre-IPO Facebook shares, continued to move beyond its social media roots.

But if software and consumer electronics firms combined for more than 60 percent of companies listed, investors are still prospecting for the next social media goldmine: According to the SecondMarket report, buyside demand for consumer web and social media companies topped $2 billion, outpacing the software and gaming category, which placed second in investor interest at $191 million, and mobile, which ranked third at $100 million.

Meanwhile, SecondMarket reminded startups that there's more than one way to keep their workers happy:

From catered lunches and free massages to in-house yoga and dog-friendly offices, startups showcase their love for their employees in countless ways, all with the ultimate goal of keeping morale and productivity high at the organization.

But if founders really want to keep overworked employees content, there's nothing like a little bit of liquidity.

"More and more companies are using SecondMarket as an incentive tool," Aishwarya Iyer, public affairs manager for SecondMarket, told Betabeat. "We have CEOs who are telling their employees, 'We're doing this for you.'"

Seventy-six percent of the sellers in the private stock market were current employees, up from 60 percent in the second quarter, SecondMarket said in a release, and a dramatic reversal from previous years: former employees made up 90 percent of sellers in 2010 and 2011.

The continuing shift in the supply of shares wasn't the only change evident in SecondMarket's third quarter report: for the first time, the consumer web and social media category didn't rank first or second in total dollar volume, accounting for a scant 1.2 percent of transactions. In part, that may be a residual effect of Facebook departure initial public offering in the middle of the second quarter, but Ms. Iyer said the shift was also due to a more diverse mix of companies using SecondMarket to provide private liquidity.

What categories gained share? Consumer electronics dominated third-quarter trading, accounting for more than 75 percent dollar volume, with eCommerce responsible for another 19 percent.

Biotech and pharmaceutical companies may drive future sales. SecondMarket collects data on companies whose shares aren't available on the platform to gauge interest—there was $77 million in demand for the biotech and pharma category last quarter, with consumer web second at $45 million and software third at $43 million.

Meanwhile, SecondMarket highlighted companies that are attracting increased interest: potential buyers "watching" Meraki, the cloud-based network infrastructure firm, quadrupled in the third quarter, and interest in Codecademy more than tripled.

Frank Mazzola

It looks like the Securities and Exchange Commission's yearlong investigation into trading private shares on the secondary market may finally be coming to a close.

Yesterday afternoon, Bloomberg first reported that the SEC is preparing to bring civil charges against Felix Investments, a Wall Street broker-dealer perhaps best-known for its twin funds Facie Libre 1 and Facie Libre II–meaning face book in Latin. "The firm is expected to be accused of violating securities laws related to soliciting investors," DealBook wrote in a follow-up, adding that Felix "aggressively accumulated" and actively promoted shares of companies like Facebook and Twitter, going as far as to cold-call Facebook employees to try to get them to sell.

The SEC is also reportedly "nearing a settlement" with SharesPost, an online platform for selling private shares.  "Regulators had expressed concern that SharesPost was not registered as a broker-dealer when it began facilitating trades in private company shares in 2009," noted DealBook.  SecondMarket, a SharesPost competitor which registered as a broker-dealer early in its history, however, "is not the subject of an SEC inquiry," spokesman Mark Murphy told Betabeat.

The irony here, of course, is that the SEC's action comes as many of the companies that were actively traded on the secondary market, like Groupon, Zynga, and LinkedIn have already gone public. In the wake of Facebook's S-1 filing, for example, some wondered about the future of SecondMarket. A yearlong investigation seems par for the course of glacially-paced federal authorities like the SEC, who didn't start sending out letters about "pre-IPO pooled investments" to Facebook, SecondMarket, and the like until late December, 2010, long after anxious headlines about bubbilicius valuations and the frenzy to invest.

Of the two potential results of the investigation, the potential civil charges facing Felix Investments appear to be more serious. A number of news outlets have exposed emails from the firm, which DealBook once described as "not part of Silicon Valley’s elite." The emails show the firm engaging in comically aggressive sales tactics. Take this snippet, posted by CNBC, regarding a “special purpose” secondary fund called Pipio Associates 1 LLC (Latin for tweet) also set up by Felix:

"If you do not own stock in Twitter already it is a must. If you already own Twitter you need to add to your position.”

A source familiar with the industry called Felix's solicitation brazen. “It’s the Boiler Room type thing, ‘You gotta get it on now! The price is going up tomorrow,'" said the source. "They were just blatantly violating some of the securities rules. Honestly, Felix is just on another level. What they were doing was so egregious and obvious.”

Felix doesn't agree, which means the SEC should be prepping for a fight. As DealBook reports, Frank Mazzola, Felix's chief executive, did not back down when he received notices from the SEC and FINRA last year.

In Finra’s report, Mr. Mazzola said he believed that “he acted appropriately at all times” and that he would “aggressively defend himself in this matter.”

The rumored settlement with SharesPost seems likely to go smoothly. SharesPost managing director of transaction services Tim Sullivan emailed Betabeat last month to say that SharesPost received its broker-dealer approval from the Financial Industry Regulatory Authority (FINRA) on January 3rd of this year, although the company says the registration went through on December 14th.

Registered broker-dealers are prohibited from doing things like showing pricing, said a source, because that implies you're trying to attract new buyers and goes against rules about general solicitation. SharesPost used to list still lists pricing on their site, as well as the logos of startups like Facebook.

UPDATE:Another source familiar with the situation reached out to Betabeat to confirm that SharesPost is indeed nearing a settlement with the SEC expected "in short order."

"The specific area of inquiry was centered around whether the company should have been a broker-dealer," confirmed the source. Prior to getting FINRA approval, SharesPost was using third-party broker-dealers for transactions, the source explained. While DealBook reported that Felix Investment received a Wells Notice (typically a sign that the agency is planning enforcement proceedings) from both the SEC and FINRA, the source says SharesPost did not receive a Wells Notice. "The investigation [into SharesPost] was not a result of any customer complaint or result of any securities fraud, it only centered around whether the company was a broker-dealer," said the source.

As to why SharesPost didn't seek to register itself as a broker-dealer earlier, the source thought it had to do with the fact that existing "regulations were unclear."

The source also said that SharesPost continues to list pricing, historical pricing and logos of startups whose shares are traded on its exchange because, "Information is power." Those specific concerns, added the source, were not part of the SEC's inquiry.

Meanwhile, SecondMarket, arguably the highest-profile company in the space, has managed to stay out of the fray. In a statement to Betabeat, the company attributed it to spending significant resources to make sure its playing by the rules:

"The private companies, buyers and sellers that utilize SecondMarket trust that we understand and comply with the regulatory framework governing secondary transactions.  SecondMarket is a FINRA-registered broker-dealer and SEC-registered alternative trading system.  Our top-notch legal, compliance and operations teams, which include former regulators, ensure that we correctly follow the relevant rules and regulations.  For the secondary market to continue to prosper, it's important that all market participants act honestly and follow the rules."

But that doesn't mean SecondMarket has remained entirely unscathed. As we told you last year, Felix Investments filed a suit against SecondMarket for a failed attempt to buy 75,000 Facebook shares from one of its software engineers. Although the engineer returned the purchase price back to Felix, the firm sued for damages based on Facebook's current valuation, rather than the valuation at the time it tried to buy the shares. We're guessing if you're sending emails like this to "accredited" investors, you'd be motivated to sue too (emphasis ours):

“We have Facebook stock at $34 which implies a market cap of about $74 billion. They will file on Tuesday "we believe" and price the IPO in May in the mid $50's and we believe the stock will be north of $100 when we can sell in November. If we are wrong here and are disappointed with the transaction it will be because we only doubled our money - which would be a major disappointment but a highly unlikely one in my opinion! Let me know if you have an interest. We had $10 million and have about $2 million left."

SecondMarket has filed a motion to dismiss the suit and is currently waiting for a ruling.

Mr. Silbert

In SecondMarket's 2011 year-end report, Facebook beat out Twitter, Foursquare, Gilt Groupe, Hulu, Spotify, and more as the trading platform's number one most-watched company. Facebook has 14,973 "watchers," almost double the next-closest, Twitter at 7,854. More tellingly, according to public statements from CEO Barry Silbert, 30 percent of SecondMarket's revenue came from trading private shares of Facebook stock, which will soon become a province of the public markets.

But to hear Mr. Silbert tell it, he's coping with the loss just fine. After all, it's not like they didn't know this was coming. As Crain's reports, on Wednesday, Mr. Silbert told the audience at an Xconomy forum on New York's venture capital scene, "We're completely prepared to fill the hole,” adding, “We're hiring, and we have a lot of capital.”

Reached by phone this morning, Aishwarya Iyer, SecondMarket's public affairs manager elaborated on that idea. "We’re in constant conversation with nearly 200 companies, from all across the board," she said. As an example, she noted that SecondMarket is in the process of getting board and management approval to trade private shares with a number of companies, and that the platform is " having liquidity programs with some of them right now."

"We plan on onboarding a big number of them," she added, which would make up for the loss of Facebook trading. Ms. Iyer declined to confirm whether Facebook indeed represented 30 percent of SecondMarket's 2011 revenues, but emphasized new areas of interest, "We’re also working on a world beyond venture-backed companies."

“Facebook put us on the map,” Mr. Silbert admitted at the Xconomy forum, but the company is trying to expand and diversify. Last year, while managing $558 million in private company transactions, the startup also launched SecondMarket for Companies, a tool set that lets private companies interact with potential investors and registered more than $6 billion in buyer interest for companies, including non-venture backed entities like Bloomberg, Burger King, and Cargill, says Crain's.  Surprisingly, foodie favorites were at the top of non-venture backed companies that drew increased interested, with In-n-Out Burger, Dogfish Head Brewery, and Brooklyn Brewery taking the top newbie spots.

Mr. Silbert wouldn't comment on whether SecondMarket will play a part in Facebook's upcoming IPO, but Crain's says he insinuated SecondMarket might be involved in future public offerings from fast-growth startups.

“We're developing relationships with private companies and aggregating interest from investors,” said Mr. Silbert. “You should see us play a role in that process.”

Diligent S-1 readers will have noticed a section in Facebook's filing about secondary transactions, which refers to an ongoing SEC investigation:

The Enforcement Division of the Securities and Exchange Commission (SEC) has been conducting an inquiry into secondary transactions involving the sale of private company securities as well as the number of our stockholders of record. In connection with this inquiry, we have received both formal and informal requests for information from the staff of the SEC and we have been fully cooperating with the staff. We have provided all information requested and there are no requests for documents or information that remain outstanding. We believe that we have been in compliance with the provisions of the federal securities laws relating to these matters.

That paragraph actually refers to a letter sent to companies like Facebook (and SecondMarket and SharesPost) by the SEC last January. At time, SecondMarket offered the following comment:

"We have now received a voluntary request for information from the SEC regarding “Pre-IPO Pooled Investment Funds.”  We are fully cooperating with the SEC in this inquiry.  SecondMarket is a registered broker-dealer, regulated by FINRA and the SEC.  We do not intend to comment further on this matter. "

It's worth noting that SharesPost, another secondary trading platform often mentioned in the same breath as SecondMarket, is not registered as a broker-dealer with the SEC. But those missing credentials didn't stop Bloomberg from adding SharesPost to Bloomberg Terminals as a source of "real-time pricing for private companies."

WINNING. Skillshare is giving away a year's TED Live membership ($995)! "You get... Virtual seats at both TED and TED Global conferences. Year-round online community access. TED Books yearlong subscription & a new Kindle Fire," says Skillshare. "This is the warmup for all the stuff coming out over the next couple of months," said CEO Mike Karnjanaprakorn, a 2012 TED fellow.

VEGAS BABY. New York is headed to CES, and Makerbot, at least, is going to be alllll over it. "MakerBot Industries, creator of the Thing-O-Matic 3D printer and Thingiverse.com will be there showing off something extra awesome, and we'd love for you to stop by our booth and check it out!" MakerBot CEO Bre Pettis is scheduling interviews now for the full-court press; the 3D printing startup is also hosting a party on Jan. 11.

SECONDMARKET'S FINEST HOUR. SecondMarket has already started marketing for its Capitalyze conference on February 15. "The public markets no longer work for sub-billion-dollar growth companies."

HIRINGS. ZocDoc is still staffing up fast; Gizmodo needs a video intern.

MORE EVENTS. "Author Aaron Shapiro, CEO of Huge, will lead an overview of his recent book, Users Not Customers: Who really determines the success of your business." Brandhacker meetup Monday, Jan. 23. New York Tech Meetup is tonight. Startup Store is having an event Saturday, Jan. 7. "Just because the holidays are over doesn't mean the fun has to stop. Birchbox and Jouer invite you for an afternoon of indulgence."

NEWS. Reece Pacheco is happy.

Managing Director Lawrence Lenihan (via firstmarkcap.com)

Guess nobody polled FirstMark Capital for that recent survey about pessimism around the venture capital market for 2012. While their peers report dwindling faith in their ability to raise funds to invest, FirstMark reported yesterday that it had closed an oversubscribed $225 million early-stage fund.

Perhaps that's why the New York-based venture capital firm opted for a subtle announcement: a blog post that, by the looks of it, has only been picked up by the New York Post and the Dow Jones Wire.

The new fund, called FirstMark V, is larger than the firm's previous $200 million fund, which boasted a big exit with Riot Games, sold to the Chinese firm Tencent this year for $400 million. Judging by some of the other promising companies in the fund like SecondMarket and Knewton, there's likely to be more good news of the way for FirstMark.

Pinterest, for example, which is hot on Tumblr's heels and already cozy with brands like Nordstrom and the Travel Channel, recently closed a $25 million round from Andreessen Horowitz at a $200 million valuation. ($200 million valuations for early stage companies seem to be something of an Andreessen Horowitz specialty.)

According to DowJones:

"The new fund will operate under the same investment thesis--it will be the first money into companies working on the application layer of the Internet, and usually companies with a New York connection. The fund will be managed by the same team, which consists of four managing directors and five venture partners."

FirstMark V has already made five investments: Greenphire (e-payments), LollyWollyDoodle (personalized kids clothing), NewsCred (a premium newswire), Dashlane (an app that improves speed and security online) and Meteor.

In the fund announcement, FirstMark waived its Silicon Alley flag high:

"We will also continue our tireless support of the NYC ecosystem. We think it's one of the best places in the world to build a company and getting stronger each day due to the efforts of many of you. This year, we co-chaired the Ingenuity conference to showcase the best companies in NYC, successfully helped launch the NYC Turing Fellows to bring more engineers to the City, taught and encouraged NYU undergrads to become entrepreneurs and join startups, invested in and mentored at TechStars, spoke and spent time at General Assembly, sponsored numerous conferences and events, and tried to make a real impact in building a vibrant local community. We will continue the mission!"

SecondMarket is most popularly known as a private company equity exchange and indeed, the startup's fastest-growing business consists of private company stock sales. That would be the Facebook and Twitter and other pre-IPO share shuffling that happens before a company goes public. And of course, a lot of demand is in tech (although PIMCO has traded on SecondMarket before, as has SecondMarket).

But a report out this month reminds us that one of SecondMarket's most important and perhaps unexpected services involves transactions related to bankruptcy. SecondMarket compiles data about bankruptcy asset transactions and calculated that bankruptcy claims slowed in October.

The company doesn't say how much revenue comes from bankruptcy claims, but it says the bulk of its revenue comes from fixed income securities such as debt instruments and asset-backed securities. Bloomberg reported that SecondMarket did $400 million in private company shares in 2010 and is on track to do $1 billion.

In 2008 after the financial crisis, SecondMarket found a robust business liquidating assets that turned up in bankruptcy. SecondMarket explains:

Sellers of bankruptcy claims can be either: A) creditors that have extended unsecured credit to the debtor company (most commonly trade suppliers of materials or services); or B) secured creditors (most commonly financial institutions) that have obtained collateral to secure an advance of credit to the debtor.

For example, if Company A is a paper supplier and its largest customer, Company B, files for bankruptcy and suspends payment of its invoices, the impact on Company A can be very severe. It’s possible that Company B’s debt represents a large portion of Company A’s total outstanding accounts receivable. Under these conditions, Company A may not have the time to wait for Company B to reorganize. Even if Company A is fairly sure that it will eventually recover a large percentage of the debt owed it, it simply may not be able to afford the wait.  Therefore, Company A will look to sell those claims – and investors/potential buyers see this as a potential investment/business opportunity, and that’s where SecondMarket comes in.

What do you do when someone like, say, Lehman Brothers goes bankrupt? "SecondMarket has brought together more than 50,000 individuals and institutions that want to find new investments, connect with other investors, and buy or sell assets, such as bankruptcy claims," the company says on its website. SecondMarket is still dealing with Lehman assets, a company spokesperson said.

The trafficking in private tech company stock started when a former Facebook employee approached the company in late 2008. He'd found SecondMarket on Google and wanted to sell his stock options to a third party. Soon the startup realized there was a healthy business in Facebook stock. A year ago, CEO Barry Silbert told Betabeat that SecondMarket was trading stock for 40-some companies, mostly technology-based and all venture-backed. We're sure the number has gone up by now. But buffered by securities trades and the recession-proof bankruptcy biz, SecondMarket has a diversified income stream.

CORRECTIONS: An earlier version of this post said SecondMarket's bankruptcy transactions totaled $3.5 billion in October and therefore outpaced its other markets; that is incorrect. That data was for the bankruptcy claims market as a whole. Betabeat regrets the error.

They probably don't actually look like this, but they do in our heads. Which is why we stay away from them.

The SEC just announced a bust of Praetorian Global Fund, which is ostensibly a hedge fund, but really, a scam built to shamelessly exploit a cross-section of the stupidest, greediest, and most inexperienced tech investors they could find. The proprietor of the scam was Florida's finest—because, where else?—one John A. Mattera, who along with his buddies claimed he held shares of pre-IPO companies including but not limited to both Facebook and Groupon. Not like they'd have any problem getting those, right? Especially since even the SEC notes that these shares are "virtually impossible for company outsiders to obtain." And John A. Mattera isn't exactly a company insider or Groupon and Facebook. Because he's a guy in Florida with a "hedge fund," is why.

So Mattera gets money from "investors"—or greedy Floridians senile enough to think they know how these computer machines and their stocks work, or senile enough to think they're investing with someone who has access to them—and he obviously just invests it in something that ostensibly looks like these companies to hide it from the SEC and produce enough returns to keep the authorities from busting him, right? Wrong again! Mattera starts ballin' out of control:

In reality, according to the SEC’s complaint filed in federal court in Manhattan, Mattera and his cohorts never owned the promised pre-IPO shares in these companies. The purported escrow service, headed by John R. Arnold of Florida, merely transferred investor funds to personal accounts controlled by Mattera and Arnold. After Arnold took a cut of the money for himself, Mattera stole most of the remaining funds to afford his lavish personal expenses and pay others for their roles in the scheme...George S. Canellos, Director of the SEC’s New York Regional Office: “Even as investors believed their funds were sitting safely in escrow accounts, Mattera plundered those accounts to bankroll a lifestyle of private jets, luxury cars, and fine art.”

Womp womp. Even Mark Zuckerberg drives a lame car. How'd these guys think they'd get away with otherwise? How'd they even get these people to invest with them in the first place? One of the Praetorian feeders, Joseph Almazon—an unregistered broker-dealer in the Long Island-based (of course) Spartan Capital Partners—had a uniquely high-tech approach to helping round up his share of $12M that went into Praetorian:

The SEC’s complaint alleges that Spartan Capital solicited investments by phone, word of mouth, and advertisements on professional networking website LinkedIn.com. One advertisement read in part: “[Spartan] can offer the opportunity to buy pre-IPO shares of the following companies: Facebook, Twitter, Zynga, Bloom Energy, Fisker, and Groupon.” Another ad stated: “We have access to Fisker Auto, Groupon, Ren Ren, Bloom Energy and many more! Unlike most of the other investment banking firms, we let you sell your shares right at the open! You also do not need to be in NY to invest in our IPOs!”

Uh, for the record, that's impossible? Especially from an unregistered broker-dealer based in Long Island, which is basically like a Real Housewives episode with an eTrade account. Lesson: Not only do old people not understand computers, they don't understand money as it has to do with computers, and those are just the people who are conned. Surely, the defense the iGoodfellas will mount will be one of ignorance, but in order to not understand that what they were doing was illegal, they'd have to have a motherboard lodged through their forehead. Furthermore, companies like SecondMarket have actually issued warnings about the proliferation of scams like these; they did so in an email they sent to users back in March. And this bust is totally unsurprising, seeing as how these advertisements are so blatant and not-at-all-cunning as to be advertising Facebook shares on Facebook. Maybe that's when the SEC started paying attention? And maybe there are more busts like this to come?

Whatever the case: People are so dumb and greedy. It's kind of great—or at least wildly entertaining—when they meet an apex like this. BetaBeat reccomends not feeling empathy for anybody involved.

Chamath Palihapitiya

SecondMarket has long been the place where Facebook employees went to sell their private shares. But today SecondMarket will announce that it has raised $15 million from Social+Capital Partnership a new venture fund established by former Facebook senior executive Chamath Palihapitiya, who will also join the SecondMarket board of directors.

“We’re delighted to welcome Chamath as an investor and board member,” said SecondMarket Founder and CEO Barry Silbert in a statement issued by the company.  “He’s a strong entrepreneur advocate committed to investing in some of the most disruptive companies in the country, and he’s assembled some of the best investors in the technology world as limited partners.  We believe that Chamath's tremendous success and experience helping Facebook to scale its business will prove invaluable to our growth.”

This money will add on to the capital SecondMarket raised in September, when it sold shares of SecondMarket ... on SecondMarket. Clearly the company is eager for cash and anxious to expand. With the stock market turning into a roller coaster over global debt worries, trading on the secondary markets may look more appealing to investors than ever before.

“SecondMarket is a clear game-changer. It has become the preeminent platform for private company shares enabling companies to meet their liquidity needs, help retain and reward talent, and provide startups with an opportunity to monetize and grow their businesses,” said Palihapitiya.  “SecondMarket is a compelling alternative to companies that are not ready to navigate the public markets.”

Will the investment from Social+Capital actually lead SecondMarket to integrate social networking into their business? Venture Beat is reporting that this transaction values SecondMarket at $200 million, which is a jump from the $160 million the company assigned itself when it sold itself on SecondMarket. So wait, did SecondMarket sell itself at a discount just one month ago? [or gain $40 million in value in one month? --ed.]