Goldman's Facebook share plan goes offline as word spreads

Goldman Sachs has withdrawn plans to offer Facebook shares to its wealthy US investors on private markets - after too much media chat.

by Dave Waller
Last Updated: 20 May 2011
The investment bank was planning to raise $1.5bn for the social networking site by inviting its elite American clients to participate in an exclusive share offer. Trouble is, such was the fervour surrounding the deal that the bank had to perform a swift about-face, in the fear that it may be breaking US government rules on advertising such private placements. Surely it should have known that offering the chance to get on Facebook’s friend list would have got people talking.

A Goldman status update would now be somewhat contrite. And the bank’s clients certainly won’t be L’ing OL. The social network has more than 500 million users and is now ahead of Google as the most visited site on the planet. Everyone wants a piece of it. Earlier this month, Goldman seemed to have scored the ultimate coup for its clients when it invested $450m, in a deal valuing Facebook at $50bn. To have built up their super-wealthy hopes, only to knock them back down, won’t go down well.

‘Goldman Sachs believes this is the most prudent path to take,’ the bank has said of its reversal. Prudent? Wow, banks really have changed. The fact that it’s prepared to upset its richest clients could be taken as a sign that Goldman is taking reputation very seriously following the general negative shift in perception around banks, and more specifically the battering it took last year, when the sale of complex credit products to clients ended up costing several hundred million dollars and landing it in more hot water.

This way Goldman gets to keep the regulators off its back, but it’s certainly a bummer for both the bank and Facebook. Even though Goldman apparently told its clients they’d have to pay a minimum of $2m to invest, and would be prohibited from selling their shares until 2013, it was still inundated with interest: orders reportedly hit $7bn.

Trouble is, you can’t do anything these days without having to watch the rules. It’s no fun any more. The US laws are strict on these private markets: you’re not allowed to advertise shares, nor chat to the media about it. Goldman’s Facebook plan was widely seen as a way to circumnavigate rules that restrict the number of US shareholders a private company can have to below 500. The SEC, the US regulator, has started to wise to such ploys, and has begun casting its scrutinous eye over the increasingly popular market in investments in private companies, not only at Facebook, but at Groupon, LinkedIn, and Zygna, maker of the bafflingly popular Farmville game too. 

The only question is, given the inevitable frenzy around Facebook shares, how Goldman figured it’d get away without anyone mentioning it in the first place. Still, popularity’s never a bad thing. While it’s embarrassing for Goldman in the US, it will still have more than enough demand from investors elsewhere in the world – such is the length of Facebook’s friend request list.

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