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Goldman Sachs is caught friending Facebook

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Earlier this month, Goldman Sachs invested $450m in the social network company at a price that valued Facebook at $50bn. It was then reported that the bank was looking to raise $1.5bn for Facebook through an exclusive share offer, known as a private placement, for the bank’s top clients…

The bank planned to set up a “special purpose vehicle” to allow its clients to invest in Facebook. The plan was widely seen as a way to circumnavigate rules that restrict to below 500 the number of US shareholders a private company can have. It subsequently transpired that Facebook was planning to address the 500 rule itself by going public or publishing full accounts…

American law prohibits “general solicitation and advertising” in private offerings, banning banks from promoting an offer by taking out advertisements or communicating with media outlets. A Goldman representative said that the media coverage could have been interpreted by regulators as marketing and publicity in contravention of private placement rules…

The move is a major embarrassment to Goldman. Its clients were reportedly told they would have to pay a minimum of $2m to invest and would be prohibited from selling their shares until 2013. The restrictions proved no barrier to the appetite of the bank’s US clients. Goldman was flooded with requests for shares.

The move will also be a blow to Facebook. Goldman was reportedly aiming to raise $1.5bn for the company but had received orders for $7bn.

Foreign investors are not covered by the same rules and will still be able to participate in the Facebook offering…

The Securities and Exchange Commission is making noises like standing up on their hind legs is easier than they thought. Facebook, Groupon, the discount deal website, LinkedIn, and Zygna, makers of the Farmville simulation game appear to be on the SEC Watch List.

Overdue.

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Written by Ed Campbell

January 18, 2011 at 2:00 am

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