back to article SEC chair blasts Silicon Valley for its hokey valuations

The chair of the US Securities and Exchange Commission (SEC) has given Silicon Valley a poke in the eye concerning its over-valuation of tech stocks. Speaking at Stanford University in the heart of Silicon Valley, Mary Jo White warned that the federal regulator did not look kindly on the wild – and wildly inaccurate – self- …

  1. Crazy Operations Guy

    Here here

    Finally, someone with authority that thinks these companies aren't worth nearly what people say. I get tired of bullshit like how Instagram was somehow worth a billion dollars despite not even in the same universe as profit. Then there are things like LinkedIn they were valued at $10 Billion but then crashed hard when investors realized they just pissed away all their cash...

    1. Yet Another Anonymous coward Silver badge

      Re: Here here

      The price is set by wealthy investors, you aren't even allowed to put money into the funds unless you are a multi-millionaire.

      Perhaps the SEC could have done a better job protecting the pensions and savings of ordinary people who put their trust in safe reliable companies like GM.

      1. Anonymous Coward
        Anonymous Coward

        Re: Here here

        As long as they remain privately held, I don't see a problem.

        But the Holy Grail is to go public, and those who invest in that IPO will be looking at those dodgy evaluations.

        Those who have been following the Wall Street Journal articles on Theranos will see exactly what the FEC is talking about.

        1. EveryTime Silver badge

          Re: Here here

          There are many problems with 'unicorn' valuations, even if it superficially looks like private investors playing with monopoly money.

          A big one one is employee stock compensation. These companies are hiring employees with promises of stock options or RSUs (essentially stock grants). That's a major part of the compensation. They are taxed on the claimed value, as if it's income. They have no way to find out what the stock is really worth. They must rely on the board, which unquestionably owes them a fiduciary responsibly to act in their best interests.

          Does anyone believe that the regular employee shareholders are being treated equally when a $10M investment gets 1% of the company (plus a hidden term 10x warrants to buy more shares at a much lower price, plus a payback of the investment amount with interest, plus a seat on the board, plus a requirement to buy 'IP' from a third party that the VC owns)?

        2. John Brown (no body) Silver badge

          Re: Here here

          "But the Holy Grail is to go public"

          Only because most of these people believe the Get Rich Quick hype. I'd have thought the real way to get rich and stay rich is to have a good company with good products or services and grow within it's means and keep the whole lot for yourself rather than divi it out amongst millions of "shareholders"

          But then what would I know. I live on what I have, not what some credit company will lend me at silly interest rates so everything ends up costing me 2-5% more.

    2. a_yank_lurker Silver badge

      Re: Here here

      It seems like every 10 to 12 years there is a tech IPO bubble as people "invest" in the latest fad. To be fair, many of the companies involved are not scams but have a real business idea/product to sell. Whether the public likes the idea/product is the key and many companies will fail. The problem is the hype surrounding the fad makes too many not do "due diligence" and assess whether the business has a viable business plan.

      Also, some of the IPO valuations smell of a form penny stock pump-and-dump tactics. The companies are not worth 1bn but more like 1 to 10 million.

    3. Ledswinger Silver badge

      Re: Here here

      Finally, someone with authority that thinks these companies aren't worth nearly what people say.

      Count me unimpressed. Mrs Rip Van Winkel may have just woken up and noticed, but there's companies (like Yahoo) that will eventually disappear after more than two decades without ever paying a dividend, and yet they sit on astronomical valuations with no substance. For the lucky ones who have or will sell out and make a profit, there's many more buying into Yahoo in what has to be a straightforward Ponzi scheme.

      In addition to not justifying their valuations, Ms White needs to look at all companies who seem to think that the secondary equity market is just a source of free capital that doesn't have to be paid for. Amazon, Googlebet, Ebay, and many others hold this belief, where the shareholders only return is selling to the next mug for a higher price. These same companies are often sitting on mountains of cash, often held offshore, and its often these same people undertaking extreme tax avoidance measures everywhere they operate.

      About time the SEC got tough on these companies, but I shan't be holding my breath.

  2. energystar

    Like the way SEC is looking at the horizon [and keeping sharp eye on inmidiacy]...

    Hopeful That Team has the necessary backup for their wording.

  3. allthecoolshortnamesweretaken Silver badge

    I think another poke in the eye is in order. With a sharp stick.

  4. ecofeco Silver badge

    Overvalued?

    How can they be overvalued considering the shear magnitude of their contributions to making life better for all humanity!

    Oh wait... Never mind.

    (Seriously, why has the SEC allowed this pump and dump factory to continue for so long?)

    1. Gannon (J.) Dick

      Re: Overvalued?

      Smart VC's are front running the pump and dump factory, launching ships like some demented multi-tasking Helen of Troy.

  5. Anonymous Coward
    Anonymous Coward

    Applaud the letter! Unfortunately its toothless as Unicorns & Bankers are in bed together...

    America thinks its John McClane, but when its time for Yippee-ki-yay-motherfucker, it eats a bullet and cowers to special interests and political interference....

    Iceland is the true hero here... Its sobering to read how US enforcement really works... And the UK? They actually paid out compensation to those they were investigating... WTF???

    www.bloomberg.com/news/features/2016-03-31/welcome-to-iceland-where-bad-bankers-go-to-prison

    1. Version 1.0 Silver badge

      Re: Applaud the letter! Unfortunately its toothless as Unicorns & Bankers are in bed together...

      Bankers do not go to prison in the USA

      1. Picky
        IT Angle

        Re: Applaud the letter! Unfortunately its toothless as Unicorns & Bankers are in bed together...

        In the UK only politicians get sent to jail.

  6. John D. Blair
    Happy

    April Fools?

    I hope this is true, but I'm suspicious of anything published on April 1.

  7. Captain DaFt

    An oddly appropriate PBF

    The last unicorn

  8. Anonymous Coward
    Anonymous Coward

    An intelligent articulate regulator addressing the specific issues.

    Now that is as rare as rocking horse shit!!

    1. Version 1.0 Silver badge

      Re: An intelligent articulate regulator addressing the specific issues.

      Not really - the SEC is worried that if the current racket continues then its bosses (Goldman Sachs etc) might end up not making as much money as they did from mortgages. Of course they won't actually lose money, that privilege is reserved for the general public.

  9. Anonymous Coward
    Anonymous Coward

    Just because a company is based in the Bay Area

    Doesn't mean it should be lumped in with all the real Silicon Valley tech sector companies.

    They just add volatility and blow bubbles.

  10. Howard Hanek Bronze badge
    Happy

    Not a Horn

    .....a magic wand developed by the scientists at Hogwarts.

  11. Florida1920 Silver badge
    Holmes

    Sure, jump on the tech stocks

    But while you're at it, tell us the one about Wall Street and the mortgage-backed securities. Didn't see that one coming, did you SEC?

    1. asdf Silver badge

      Re: Sure, jump on the tech stocks

      No way somebody as respectable as Mr. Madoff would be up to something dodgy. Besides we have had several junior regulators who will go work for Wall St. in a few months look into it, so nothing to see here. Fsck the SEC. Whenever the spotlight gets hot on them for their ineptness they go fiind some low hanging Indian American analyst to charge with insider trading to show they are getting tough on their white collar buddies.

  12. SoloSK71

    but short selling is totally legal, even though it is the exact opposite of this

    1. Anonymous Coward
      Anonymous Coward

      Whaaaaat?

      AG: "Murder is illegal."

      SoloSK71: "but saving lives is totally legal, even though it is the exact opposite of this"

  13. Colin Tree

    stupid, greedy people

    This problem will exist as long as there are stupid, greedy people.

    Shareholders think they are entitled to make obscene profits for doing nothing.

    FiretrUCK them.

    If you invest in a business you put your sweat and labour into, you deserve a reasonable profit.

    If you invest in your children, you are truly investing in the future.

  14. jake Silver badge

    "over-valuation of tech stocks."

    Now THEREis a serious understatement ...

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