The head of the SEC warned investors to be wary of Silicon Valley unicorns
Unicorns, private companies valued at over $1 billion (£700 million), need to be watched closely, White told around 300 people at Stanford Law School on Thursday.
During her talk, White reportedly expressed concerns that startups might bend rules on financial disclosures or corporate governance as they chase the highly sought-after unicorn status.
"The concern is whether the prestige associated with reaching a sky-high valuation fast drives companies to try to appear more valuable than they actually are," White said. "There is a worry that the tail might wag the horn."
White believes the growing number of unicorns risks harming investors and she thinks the people in charge of these startups have a duty to uphold.
Investors have backed Silicon Valley startups with tens of billions of dollars over the last few years. Taxi app Uber, for example, has raised more than $10 billion, while home-sharing company Airbnb has raised $2.39 billion.
The companies raising vast sums at high valuations and delaying their IPOs are inspiring a growing secondary market, where early startup employees sell stock to outside investors.
White said derivatives are now involved in some of these deals and warned that "errors or misconceptions in valuation could be amplified" by derivative contracts. There may be liquidity problems that prevent investors from selling stock in deals involving derivatives and startup employees, according to White.