Mary Jo White is looking around and seeing a lot of "Unicorns" sh!tting rainbows of future money all over the place.
Tech bros hit on an idea, convince VCs that its "a disruptive gamechanger," slap a 10 figure valuation on that baby and get mutual funds to buy in pre-money. The sky turns bright blue, mythological creatures begin to run and fly and everyone decides they're about to be sooooo rich. It's a colorful tableau of financial wonder.
Federal securities regulators are looking more closely at whether U.S. mutual funds have proper procedures in place to accurately price shares of private technology companies amid signs the tech boom is wavering, according to people familiar with the matter.
The Securities and Exchange Commission in recent months has been asking more questions of large fund firms about how they value startups and whether their process ensures an accurate estimate of a company’s worth, the people said.
The SEC is raising its unkempt brow at the bigger funds and trying to get a straight answer on what exactly it is that they think they're buying and if they really know what its worth. But while Fidelity (NASD: FFIDX), T. Rowe (NASD: TROW) and BlackRock (NYSE: BLK) are almost certain to bluster and bristle, the SEC does have some examples to use when holding feet to the fire on the valuation question.
According to a Journal analysis of data provided by fund-research firm Morningstar Inc. of startups worth at least $1 billion, there were 12 instances over the past two years in which the same company was valued differently by more than one mutual fund on the same date.
In the quarter ended June 30, for example, Fidelity said car-sharing service Uber was worth $33.32 a share, Hartford Financial Services Group (NYSE: HIG) said it was $35.67 a share and BlackRock valued the company at $40.02 a share. Spokesmen for Fidelity and BlackRock have said that they employ rigorous valuation processes for pricing private holdings. A spokeswoman for Hartford has declined to comment.
Andwhile all those funds are well within their rights to zip it, Fidelity shouldn't be too surprised if Mary Jo does her best Columbo and asks "Just one more thing ma'am...What the f#ck is happening with Snapchat?"
Fidelity, a fund manager which invested in the creator of the mobile app for sending disappearing photos and videos, marked down its stake in Snapchat by 25 percent to $34.5 million in the third quarter, according to data from Morningstar (NASD: MORN) on Tuesday. Snapchat had raised cash from investors at a $16 billion valuation earlier this year, a person familiar with the matter said in May, bringing its total fundraising to $1.2 billion.
We've all been wryly cynical about tech valuations for some time now and they've seemed kinda harmless. But if Mary Jo White is serious about reaching into the pockets of investment bankers and clawing back performance-based compensation money in order to offset inflationary quarterly accounting behaviors, you can bet your ass that she's going to euthanize a few unicorns if it means safely deflating a tech bubble.