Facebook ends end-run around U.S. securities laws

There was another question about the planned Facebook stock offering that went beyond whether the social media leader is a good investment now or if it's overpriced. A more serious issue was how investment banker Goldman Sachs was structuring a "private placement" deal to skirt U.S. securities law.

Now it seems Goldman Sachs has decided that "intense media attention" no longer made it worthwhile to go forward with offering a piece of Facebook in the U.S.

Does that mean the deal is over? Does it mean that Facebook will do a deal in the U.S. with proper financial disclosure?

Unfortunately, neither. Instead, the Wall Street Journal is reporting today that Facebook will go ahead with its private stock sale but exclude U.S. investors from the deal.

"In a statement provided to The Wall Street Journal, Goldman said the move came after officials at the New York securities firm 'concluded the level of media attention might not be consistent with the proper completion of a U.S. private placement under U.S. law,' " Aaron Lucchetti reports for the Wall Street Journal.

Under the planned offering, only wealthy clients of the investment firm would have been allowed to purchase a piece of Facebook. The arrangement sounded fairly complex; but basically, the idea was to put all the Goldman investors into a single fund and then count that fund as "one" investor. Why? By doing so, they would get around required public financial disclosures for any company with 500 or more investors. (There was more money coming in from another investment firm in Russia.)

The $1.5 billion deal is apparently going ahead with offshore investors -- likely including money from China. Facebook, which has often been somewhat, oh, less than fierce guardians of its customers' privacy, has a dramatically different attitude when it comes to protecting its own information.

I'd been considering cutting back on my personal use of Facebook if this deal went through, since the more I heard about this financing deal, the angrier I got that the company was allowing its investment firm to so brazenly flout the intent of our financial laws -- regulations aimed at protecting American investors. Those laws were instituted to try to level the financial playing field at least a little, between the wealthy, powerful and well-connected and everyone else.

Now? I'm happy Facebook and Goldman Sachs aren't flouting the law, but not quite as pleased that Facebook would rather close off investment to Americans than follow laws that many other companies have found perfectly satisfactory in raising money in U.S. capital markets. Even if Facebook may end up doing those American investors a favor by not allowing them to buy in at the peak of the company's hype bubble.

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Sharon Machlis

Computerworld (US)
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