Let me open this post by saying this: America is still a place where most people can become anything they can dream of becoming. Examples of such — including our current president — are abundant. But how anyone can make the argument that the system hasn’t become rigged for the rich (and connected) to continue to get richer boggles my mind. Case in point: “normal” people being denied access to stock before said stock hits the open market.
To demonstrate how this happens, Buzzfeed’s Reyhan Harmanci attempted to get in on the initial public offering for Facebook stock. Understandably, Harmanci felt that she, as a Facebook user, should be able to buy some Facebook stock — after all, if not for her and millions of other “normal” people actively using the site, it’d be nothing. I’ll give you one guess as to what happened.
Before a company decides to go public, increasingly, people are trading those early private shares on special websites. Business has been brisk, with over $5 billion in deals done via just two secondary market platforms (SharesPost and Second Market) in 2011. And Facebook has been extremely active. In 2008, for instance, the Securities and Exchange Commission gave the company an exemption from a rule that a company could only trade 500 shares of its private stock, with the caveat that most of the shares had to remain inside Facebook.
But to buy a share on the secondary market, you need to be an “accredited investor” – i.e., have a net worth more than $1 million and annual income exceeding $200,000 ($300,000 if married.) Also, Facebook shut down trading of secondary market shares in late March in advance of the IPO. Road closed for me.
Harmanci’s full piece is an interesting read but pretty much boils down to this: if you’re common folk, keep on “liking” and “sharing” and just buy some Facebook stock on eTrade once the price has become ridiculous inflated. And the world will spin madly on.