Goldman Sachs Says Facebook Offer Barred From US Investors, Blames NYT's For Making Plans Public

from the and-so-it-goes dept

Tue, Jan 18th 2011 1:34am — Mike Masnick

We've already talked a bit about the Goldman Sachs/Facebook situation -- and the fact that much of it seems to involve skirting around existing regulations to try to get people to invest in Facebook without actually going public. The latest shift in this is that Goldman Sachs has announced that the offering is no longer available to US investors, and somehow it's all the NY Times' fault.

The reality is a little more nuanced. The thing is, the SEC heavily regulates the IPO process, because (officially) it doesn't want companies to abuse the process, lie to investors, trick them into buying shares in something they don't understand or that's really much riskier, etc. We've discussed in the past, and years back, VentureBeat had a great article that noted many startups appeared to violate the basics of SEC regulations even in just saying they were raising money from private investors, because just talking about it publicly can be seen as a form of a "public offering." It seems that Goldman was becoming worried that all of the public scrutiny on this deal was suddenly getting mighty close to being a "public offering" type of situation, in which the SEC could conceivably step in and claim that it needs to follow all of the standard IPO rules -- which it had not been doing. Goldman has apparently hoped to keep everything a lot more quiet, but the NY Times broke the story, and then everyone else piled on.

The whole thing remains a little silly. This whole thing has been an effort to route around the regulations from the beginning, so this is just the latest piece of that, though it may serve to annoy a lot of American Goldman clients. In the end, it wouldn't surprise me to find out that many of them figure out offshore vehicles for getting in on this deal anyway.

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Filed Under: ipo
Companies: facebook, goldman sachs

13 Comments

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abc gum, 18 Jan 2011 @ 5:05am

The best laid plans of mice and men often go awry
Big Business will follow rules only when pigs can fly
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- John Duncan Yoyo, 18 Jan 2011 @ 5:17am
  
  Re:
  Yep this has Scam written all over it. At least the cops are on the beat. Lots of the fiscal problems we are suffering now is the failure to enforce the rules on corporations for the last couple of presidents.
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Jimr (profile), 18 Jan 2011 @ 5:18am

DO IT SECRETLY
Lesson Learned: You can lie to investors, trick them into buying shares in something they don't understand or that's really much riskier, etc. AS LONG AS YOU DO IT SECRETLY!

This whole Goldman Sachs/Facebook and $50 Billion valuation just seems off. The whole security and back door deals to get investors has the characteristics of a potential scam in the works. The sooner the SEC steps in the better.
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- Hephaestus (profile), 18 Jan 2011 @ 7:28am
  
  Re: DO IT SECRETLY
  With a 50 billion dollar valuation and 500 million users. That valuation is $100 USD per person on face book. This time next year facebook should have between 650 and 710 million users, in three years it should top a billion users if the trends hold.
  
  So 50 billion means the ability to monetize each person at an average of $2.50 USD per year for twenty years. Not all that hard if they add a digital sales component, hook up with Amazon, ebay, etc, for hard sales.
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Anonymous Coward, 18 Jan 2011 @ 5:49am

That's the mantra of Wall Street. Skirt the regs.
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Chris in Utah (profile), 18 Jan 2011 @ 5:56am

Another case of some rights or infinite rights. Citation: George Carlin on Rights and Privileges. Even execs love to challenge the system, IMO its healthy to think about what nobody has before.
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Anonymous Coward, 18 Jan 2011 @ 6:09am

Seems to be a bit of misunderstanding between what investors find possible verses what sidewalk superintendents feel is appropriate.

With the crap that the SEC and Washington is pulling the next big thing will be to off shore companies with a flag of convenience before they become public and then take these off shore companies public outside of the US in a manor that prevents US investors from investing in US initial public offerings. There is no reason that a company has to be a US registered company and there is no reason that a foreign company can not do a public offering with out US investors.

The hate and blame Wall Street croud can actually force finance out of the US into more favorable judicial locations. There is nothing magical about the physical location of New York. Other offshore locations are just as acceptable.
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James, 18 Jan 2011 @ 7:04am

Hmmm... Google didn't seem like it was worth its valuation either. Neither did Apple at one time. Yet look at where they are today.

I would not discount Facebook lightly. I am angry I cannot get in however on what will probably be a very sweet payday.
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Chris Rhodes (profile), 18 Jan 2011 @ 7:05am

Another Example
Yet again the government tries to protect me from myself.

Maybe I'd like to invest in a risky investment? Barring me from doing so merely because "I might get tricked" is pretty lame.
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- Anonymous Coward, 18 Jan 2011 @ 8:46am
  
  Re: Another Example
  Its not saying that the government is preventing this. Its more likely that GS knows this will fail and rather not incur the wrath of the US people against its gilded halls.
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  - The eejit (profile), 18 Jan 2011 @ 9:18am
    
    Re: Re: Another Example
    As opposed to its Executives' windfall payments and outright mortgage fraud?
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AnonCow, 18 Jan 2011 @ 1:54pm

Bernie Maddoff must be pissed that he is in jail and the FB executives and early investors are free men...
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Andrew D. Todd, 19 Jan 2011 @ 6:33am

Re: Re: DO IT SECRETLY (response to Hephaestus, #9)
We cannot know how many little advertisers are doing the same thing as Make-My-Baby.com, only on a more discreet scale. If Facebook could not spot a company which was its third largest advertiser, it must have been rather more difficult to spot smaller ones. Obviously, there are legal ramifications to changing people's browser settings without permission, and there may be lawsuits. Facebook may have to restate its earnings, after everything comes out in the wash. The last time around, there were cases of people who were supposedly making large profits, and eventually turned out to be running losses, burning through the investors' money.

http://www.techdirt.com/articles/20110118/02531712708/facebooks-3rd-biggest-advertiser-acc used-being-affiliate-toolbar-scam-facebook-says-its-never-heard-company.shtml

My experience with blogs, and before that, with bulletin board sites, back in the 1980's, is that huge numbers of nominal registered members are people who signed up, decided it wasn't for them, and moved on, leaving derelict accounts behind. Obviously, you can't make any advertising revenue from someone who hasn't accessed his account for years, and has in fact forgotten the password. Likewise, the user might have bought a new computer, effectively discarding installed software. Someone might have moved his bookmark file, his e-mails, and his address book for him, but all the other stuff might not have gotten transferred.

The third point is that there simply aren't that many people with first-world incomes, only a billion or so. If five hundred million people have, in effect, taken the introductory offer, and either stayed or moved on, one is beginning to get to the upper side of the S-curve. Growth will become increasingly problematic. Facebook will be increasingly trying to sell to people who do not behave like teenagers, and do not want to be treated like teenagers. All this "friending" stuff, for example.

The historian A. J. P. Taylor once observed that a generation of college students is only four years, and this would presumably apply to Facebook, which is nothing if not collegiate. That said, buying Facebook on the basis of "twenty year's purchase" is highly unrealistic. A new "generation" may start doing something different, while the current generation "outgrows" Facebook.

recently leaked figures of Facebook's income appear to be in the neighborhood of five hundred million per year. On that basis, Facebook might be worth two billions, not fifty billions.

http://news.slashdot.org/story/11/01/07/1648251/Facebooks-Revenues-Leaked?from=rss
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