Facebook insiders can sell stock as 'lockup' ends

Posted: August 15, 2012

MENLO PARK, Calif. - Facebook's early investors and a handful of directors will become eligible Thursday to sell stock they own in the social-networking company. It marks the beginning of a time-honored process for public companies, one that will give many Facebook employees the same right to sell their shares this fall.

It's conceivable that none of them will sell. But if they do, up to 1.91 billion more shares could flood the stock market over the next several months - more than four times the 421 million shares that have been trading since Facebook's initial public offering in May.

So-called lockup periods, which prevent insiders from unloading shares too close to an IPO, generally start to expire 90 days after a stock makes its public debut.

Lockups are designed to prevent a stock from experiencing the volatility that might occur if too many shareholders decide to sell shares of a newly traded firm all at once.

But there is risk involved, too. If too many people sell, Facebook Inc.'s stock price could decline.

That's a problem that the company can ill afford. On Tuesday, the stock closed at $20.38, down 46 percent from its initial public offering price of $38.

In all, 271 million shares will become eligible this week, according to Facebook's regulatory filings. Firms ranging from Accel Partners to Goldman Sachs and individuals including Zynga chief executive Mark Pincus and Facebook board members James Breyer, Peter Thiel, and Reid Hoffman are among those free to sell stock they own. Microsoft Corp., another early Facebook investor, will be eligible to sell, too.

Facebook's chief executive, Mark Zuckerberg, 28, won't be able to sell his shares until mid-November. Facebook has not explained why Zuckerberg didn't become eligible this week. He controls about a third of the 1.22 billion shares and stock options that will become unlocked Nov. 14.

Wedbush analyst Michael Pachter believes it is unlikely that top executives will sell their shares as soon as they can. It would look bad for the company, Pachter says, if Facebook's No. 2 executive and operating chief, Sheryl Sandberg, or finance chief, David Ebersman, decided to sell.

"The only people who would sell are people who need the money," Pachter says. "I would be very worried if Sheryl Sandberg or Ebersman sell, but they are not that dumb."

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