No piece of Facebook pie for you!
Were you one of the lucky people who received an email from Goldman Sachs asking if you’d like to invest in Facebook? Well, too bad - because that lucrative piece of FB pie is now off-limits.
That's right. Goldman Sachs Group recently issued a statement declaring it would not offer US clients an opportunity to invest in Facebook, for fear that the intense media attention surrounding the deal could put transactions in danger of violating stringent security legislation.
The investment giant concluded the level of media attention might not be "consistent" with the proper completion of a private placement under US law.
The decision was announced last week and was "required or requested by any other party.”
After the leak and media attention, Goldman and Facebook execs were forced to restructure the investment deal at the last minute.
The Facebook execs decided to still release $1.5 billion in available Facebook shares but only to those who live outside the States.
Goldman Sachs and Facebook have closed the deal to American investors, keeping the deal open for foreign investors looking to front a cool $2 million minimum.
Analysts warn that barring US clients from investment may cause a rift between Goldman and some of its biggest American clients.
Although Facebook seems about as American as apple pie, statistics show over 70% of the site’s users are based outside the States. That said, over $7 billion has been fronted by foreign investors hoping to get a piece of this $50 billion dollar Facebook pie.
$500 million of Facebook’s $50 billion valuation came directly from Goldman Sachs itself along with a Russian investment company, Digital Sky Technologies.
One of the main reasons for restructuring the investment offer was based on the differences in American financial rules compared to elsewhere in the world.
Here in the States, private deals "cannot be the subject of advertising, general promotional seminars or public meetings in connection with the offering," under a SEC rule ominously called Regulation D.
Thanks to the major media attention, Facebook and Goldman have decided to stick with foreign investors where only, where financial regulations have no qualms with media attention.
Sources close to Goldman Sachs and the Wall Street Journal explained that by allowing US investment after the major media attention and leaked documents could prompt a government crackdown barring Goldman Sachs from running the deal at all, or forcing it to buy back all sold shares.
Goldman is particularly careful when it comes to the SEC these days since last year’s fraud accusation that cost the firm $550 million.
"In the post-crisis world, Wall Street firms don't want to get too close to the line," said Clayton Rose, a professor of management practice at Harvard Business School.
In its statement, Goldman said it "regrets the consequences of this decision, but we believe this is the most prudent path to take."
The original deal stays mostly intact, including the $2 million minimum requirement and the requirement that shares be held under 2013.