Goldman Sachs just announced that the shares in Facebook it was planning to sell to investors is now off limits, unless you are a foreign investor. This comes on the heels of increasing scrutiny by the SEC, as the sale of shares of Facebook raises questions about the legitimacy of any additional transactions.
You see, if you are a private company, like Facebook is, and if you end up having more than 500 investors, then you have to open up your books to the public and the SEC, and obviously, Facebook and Goldman aren’t prepared to so so. So, a way to skirt around the whole thing is to just offer the shares to foreign investors, because apparently, it allows Goldman to proceed without as much scrutiny.
All of this started to become a problem after Goldman announced they were going to raise $1.5 billion for Facebook by ponying up $450 million of their own money and another $500 with the help of a Russian investment firm, Digital Sky Technologies. This had the effect of valuing Facebook at roughly $50 billion. Then, it became apparent that in order to come up with the balance of the funds they were looking for, that Facebook could end up with more than 500 investors, and thus the need to disclose financial data.
So, Goldman Sachs, supposedly one of the most sophisticated investment bankers around, actually put the cart before the horse, and then had to scramble to come up with an alternative. Thus the foreign investor route, disappointing its American based clients.
Goldman seems to operate on its own terms, and with not much consequence. It almost went under back in 2008 when the financial sky was falling, but Goldman alum Hank Paulson went to bat for them, got them TARP funding, while Merrill Lynch and others bit the dust. Then, it more recently got into hot water with the SEC, when it surfaced that Goldman had been accused of skirting around investor disclosure laws.
Ironically, all of this comes right on the heels of Goldman announcing it was going to do a better job of disclosing important information to its investors. If you believe that, please let me know how I may contact you to sell you some swamp land in Florida.