As Dan Primack reports, Mr. Musk went on Twitter last Monday to crow that the electric car company notched positive cash flow in the previous week, then defended the disclosure in an appearance on CNBC yesterday (you can see it after the 9 minute mark here):

... it's done after hours and you follow up with investors and you do multiple channels, which is what we did, it wasn't just a Tweet—maybe people aren't aware of that—I don't think there is any selective distribution of information. I think that would be a bit of an inaccurate mischaracterization.

That news followed word last week that the SEC was investigating Netflix after CEO Reed Hastings took to Facebook in early July to brag that the company's customers had viewed more than 1 billion hours of content in June.

At issue in these social media disclosures is whether the companies are violating Regulation Full Disclosure, or Reg FD, which requires public companies to make material information available to all investors at the same time.

Typically, that means issuing a press release and filing documents with the SEC. But as companies increasingly use social media to communicate with the public—Mr. Musk has more than 115,000 Twitter followers, Mr. Hastings has more than 246,000 subscribers to his Facebook page—websites such as Twitter and Facebook may be seen as viable means of putting information in the hands of investors.

For their parts, neither CEO has gone so far as to argue that social media alone is enough to meet the threshold for full and fair disclosure under Reg FD. In a Facebook post following disclosure of the SEC's investigation into Netflix, Mr. Hastings argued that his customers' viewing hours doesn't constitute material information.

And Mr. Musk, of course, claimed that Tesla used multiple channels to share its cash flow news, though it's worth noting that when Mr. Primack pressed the company on what those other channels were, a Tesla spokeswoman had no comment.

Those explanations aside, it’s hard to think that either CEO or their corporate minders are so naive to think that their respective disclosures wouldn’t raise hackles at the securities regulator. In fact, it's starting to feel like tech CEOS are trying to force the issue. Social media is how we communicate, they seem to be saying, and the SEC should just deal with it.

Yeah, you should be sweating (Photo: scrapetv.com)

Yesterday over drinks, we asked an angel investor if he thought Gilt Groupe would actually go public this quarter or next year, as planned. Fat chance given the post-Facebook IPO market, he replied. (Stronger language was used.)

Today, Bloomberg offers a must-read, in-depth investigation into just how cynical Facebook was in the lead-up to the IPO, including obscuring material information on risks demanded by the Securities and Exchange Commission. Those vulnerabilities, such as difficulties in monetizing mobile, decelerating revenue and dependence on Zynga, became painfully evident to shareholders who have watched what was supposed to be "the IPO of the Century," drop in share price from $38 down to $19.69 as of this afternoon. 

Lest you think it's merely the vagaries of the public markets, Bloomberg outlines how Facebook's pricing structure played into that (emphasis ours):

Despite the cautionary signs, on May 15 Facebook and Morgan Stanley executives raised the asking price to a range of $34 to $38 from $28 to $35. A day later they also increased the number of shares being sold by 25 percent to 421.2 million. That was an effort to create a stronger buffer against a price decline in August when insiders and early investors were allowed to sell their stock, said one person familiar with the matter. The lock-up period was for only three months, unusually short compared to the average six months.

Some of the culpability lies with the SEC--specifically, the agency's policy that that makes a company "responsible for its own disclosures," which allowed correspondence from the SEC demanding answers about risks to go unpublished until a month after the IPO.

A dozen letters, published a month after the May 17 IPO on the SEC’s website, depict a management team hesitant to disclose information and still guessing at even rudimentary aspects of its business just weeks before the company held the largest-ever technology initial public offering.

Of course Facebook's decision not to delay the IPO after significant, last-minute changes in forecast was "almost unprecedented," analysts told Bloomberg.

There was also the hysteria leading up to the IPO. In July 2011, trading on SecondMarket suggested that Facebook had a market cap of $85 billion. Its current market cap is $42.2 billion.

While the SEC continues to conduct an “in-depth review of all the participants” in the IPO to determine if anyone left out or lied about material information, Bloomberg has outlined some of its known sins against shareholders.

In one instance, Facebook cited Nielsen as a source for statistics about social ads that actually came from Facebook's marketing materials. And it wasn't until an ultimatum from the SEC that the reference was removed. Then, in addition to Facebook's troubling uncertainty over the number of mobile users (the SEC noted that they were counting some users twice, putting total user count into question), Facebook also seemed clueless as to where in the world their users were coming from:

"The company counted as Canadian many BlackBerry users around the world because the servers are based in Canada."

But the most egregious manipulation--as Bloomberg covers in great detail--involved who was told what and when, bringing us back to the impact of Facebook's IPO on the overall market. On May 9th, the same day Facebook released a "pivotal" disclosure "to investors cautioning about the growth in mobile users exceeding growth of ads," Zuck, CFO David Ebersman, and COO Sheryl Sandberg were on the road show hyping the stock. Meanwhile:

Investor relations staff at Facebook began placing a battery of calls to equity analysts with a dour warning: sales for the second quarter and full year wouldn’t likely match its earlier guidance, according to people familiar with the situation.

Analysts adjusted their forecasts down and shared them verbally with their firms’ institutional clients, whose demand for the stock sagged as a result, people with knowledge of the matter said on May 10. Sharing that information only with institutions isn’t unusual, and it’s legal as long as they don’t do it in writing.

But it wasn't just institutions who were investing.

Yet Facebook wanted the larger retail allocation to let its users take part in the IPO, the person said. In the end, 25 percent of the shares sold at the IPO were allocated to retail investors, other people have said. That exceeds the average amount of 15 percent.

It should have been enough to delay the IPO, Luigi Zingales, a finance professor at the University of Chicago’s B-school, told Bloomberg.

Still, said finance professor Zingales, “The fact that some institutional investors got access to a company’s information that was not available to ordinary investors creates the perception that there are two sets of rules and increases the mistrust in the market.”

So who emerged unscathed from this mess? Take a guess.

There were no headaches for investors who bought equity while Facebook was still private and were able to sell at the $38 IPO price. Goldman Sachs sold 24.3 million shares, which raised $924 million at the IPO price, doubling its original investment. Greylock Partners made 18 times its initial investment, selling 7.6 million shares for $289 million. Microsoft sold 6.6 million shares, which raised $249 million, more than quintupling its initial stake.

Stay tuned for more fallout later this month "when holders of more than a billion shares, many of them employees, will be permitted to sell."

JOBS Act supports via Angel List

Ready your startups, the early stage investing climate is about to go into overdrive. This afternoon, the JOBS Act (or Jumpstart Our Business Startups Act) passed in the House with an overwhelming vote of 380-41. Next, the bill moves to President Obama, who is expected to sign it into law.

It's been a bit of a bumpy ride. The JOBS Act originally passed in the House a few weeks ago with a 390-23 vote a couple weeks ago. The Senate's version of the bill, called the CROWDFUND Act (or Capital Raising Online While Deterring Fraud and Unethical Non-Disclosure Act), added a number of safeguards for investors and passed last week 73-26. The JOBS Act was then revised to reconcile with the Senate's bill, which is why the final version had to move back to the House for another vote. 

As the Washington Post reports, President Obama's support for the bill "has put him at odds with frequent allies, including labor unions and consumer and regulatory groups." Although the bill has been buoyed by overwhelming support from the tech community, "Critics say that the changes would allow firms to avoid disclosing crucial financial information and elude government oversight, opening the door to fraud and investor abuse," adds the Post.

We detailed some of the crucial changes the bill will bring about, including increasing the 500-shareholder cap up to 2,000 investors before companies have to disclose their financials and allowing unaccredited investors to contribute limited amounts to small companies via crowdfunding platforms.

For a more thoughtful take on what this means for the startup world from a veteran tech investor, check out Rick Webb's incisive column from earlier today.

It's worth noting, however, that Mr. Webb isn't the only techie with misgivings.

@naval @katedmitchell I for one think this Jobs act is a terrible idea and sec would neuter it big time. Cc @davewiner

— Om Malik (@om) March 27, 2012

Mr. Winer's response? Cross your fingers.

@om @naval @katedmitchell -- actually I read that it was neutered before it passed. In any case, nothing can be done now. Hope for the best.

— Dave Winer ☮ (@davewiner) March 27, 2012

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.