Goldman Sachs cuts U.S. investors out of Facebook deal
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Goldman Sachs has decided to block U.S. investors from getting in on its big investment in Facebook.
The decision comes after a wave of media attention when Goldman invested $450 million in Facebook, a privately held company, as reported by our sister blog Money & Company.
Excluding American investors will keep Goldman and Facebook from having to fall in line with some U.S. securities laws -- such as having to report certain financial information when a cap of more than 500 U.S. investors is broken so that investors can have an idea of the risk they face in the stock.
The Goldman deal with Facebook caught the attention of the Securities and Exchange Commission in particular. The SEC was looking to see whether or not disclosure rules would need to change as investors would be buying shares in a privately-held Internet company without those companies being obligated to disclose information on the deal to the public.
Before deciding to go exclusively outside of the United States for investors, Goldman had been courting its wealthiest American clients to get in on Facebook, possibly putting as much as $1.5 billion into the social networking site.
‘The decision not to proceed in the U.S. was based on the sole judgment of Goldman Sachs and was not required or requested by any other party,’ Goldman said in a statement. ‘We regret the consequences of this decision, but Goldman Sachs believes this is the most prudent path to take.’
As The Times’ Nathaniel Popper explains over at Money & Company, Goldman’s deal with Facebook is what is known as a private placement.
U.S. securities law states that banks, such as Goldman, can solicit investors for such deals only in private.
While Goldman did not publicly advertise the Facebook deal, news of it leaked out to the public and the intense coverage that resulted could have created legal problems if the deal went ahead with U.S. investors.
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-- Nathan Olivarez-Giles
Photos (top): In this 2010 photo, Goldman Sachs Chairman and Chief Executive Lloyd Blankfein testifies before the Senate Subcommittee on Investigations about Wall Street investment banks and the financial crisis. In response to widespread criticism over its practices, Goldman Sachs last week released an internal report that makes recommendations on how it can be more transparent about its business practices. Credit: Susan Walsh / Associated Press
(bottom) Facebook co-founder Mark Zuckerberg speaks during a news conference at the company’s headquarters in Palo Alto last May. Credit: Gabriel Bouys / AFP/Getty Images