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Originally published Friday, September 13, 2013 at 7:26 PM

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Twitter’s confidential IPO filing leaves investors in the dark

Because of the confidential nature of its IPO filing, Twitter has yet to reveal its annual revenue, how many users it has, what sort of control its top executives will have, which stock exchange it will use and precisely when it will put its shares up for sale.

San Jose Mercury News

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Numerous questions and some deep concerns lingered Friday, one day after Twitter’s announced plans for its Wall Street debut in what has become one of Silicon Valley’s most-anticipated initial public offerings.

Because of the confidential nature of its filing, Twitter has yet to reveal its annual revenue, how many users it has, the amount of cash it hopes to raise, what sort of control its top executives will have, which stock exchange it will use and precisely when it will put its shares up for sale, among other things.

Moreover, the secretive method the San Francisco microblogging site is using for its Wall Street launch significantly shortens the usual time the public has to review a stock offering, which critics contend creates a problem for people considering putting their money into the company.

“It means that investors have less opportunity to examine the disclosures before making an investment decision,” said Santa Clara University law professor Stephen Diamond, an expert in corporate securities and governance issues. While that shouldn’t inconvenience sophisticated hedge funds, he added, “small investors who are at the bottom of the food chain in getting good information and analysis will suffer the most.”

Joe Spiegel, a manager at New York hedge fund Dalek Capital, agreed, adding that the 2012 law that permits such confidential IPO filings “is really awful for investors.” He owns shares in a public investment fund that in turn owns about 1 million shares of Twitter stock.

Twitter on Thursday announced it has filed its IPO plan under a provision of the Jump-Start Our Business Startups, or JOBS, Act, which lets “emerging growth companies” with less than $1 billion in revenue keep their financial and other information confidential much longer than is otherwise possible for businesses seeking to go public.

Without that provision, companies typically file a series of public drafts with details about their proposed stock offering, which are hashed out and modified with federal regulators over a period of months. But under the JOBS Act, companies like Twitter can keep that information under wraps until three weeks before pitching their stock to institutional investors, a step before the stock is actually sold. When they do disclose the data, they also don’t have to reveal as much about what they’ll pay their top executives.

The law was designed to let a small company quietly test the waters with regulators and large potential investors, without a long period of public scrutiny that might reveal too much to its competitors or prove embarrassing if its finances aren’t entirely in order or it ultimately decides to stay private.

“The idea is to try to keep the frenzy diminished” while the company prepares to sell its stock, said Steven Davidoff, a law professor at Ohio State University, noting that Zynga and Groupon both endured stinging criticism over their accounting methods during their more public IPOs.

Once Twitter makes its filing public, one question investors will have is the amount of stock given to its top brass, Davidoff said, adding, “The question is: How much control do they get?”

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