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Goldman Sachs Pulls Private Offer for Facebook Shares

by Amar Toor on January 18, 2011 at 11:10 AM

facebook loginIt's no secret that Goldman Sachs wants to cozy up with Facebook, but it looks like both parties will have to put wedding plans on hold, as the bank has suffered a major blow to its carefully laid investment plans.

After investing $450 million in the social network earlier this month, Goldman reportedly turned its attention to raising an additional $1.5 billion from its top clients through an exclusive share offer. As the Guardian explains, the investment bank wanted to set up a 'special purpose vehicle,' which would have allowed its clients to invest in Facebook, even though it has yet to go public. Because the company hasn't gone public, U.S. law prohibits it from having more than 500 American shareholders. Goldman's plan, it was rumored, would allow the bank to get around that regulation.

Under Goldman's offer, clients would have to pay $2 million to invest in Facebook, and would be prohibited from selling their shares until 2013. The terms may seem exorbitant to most, but the bank reportedly had plenty of people interested in getting a piece of Mark Zuckerberg's company. The only problem, however, was that the media caught wind of the plan, and that's where it unraveled.

U.S. law expressly prohibits banks from indulging in "general solicitation and advertising" when making private offerings. Although Goldman itself never commented on the Facebook offer, the bank ultimately determined that the widespread rumors had already done enough damage, and decided to pull the plug on the venture.

"Goldman Sachs concluded that the level of media attention might not be consistent with the proper completion of a U.S. private placement under U.S. law," reads a statement from the bank. "The decision not to proceed in the U.S. was based on the sole judgment of Goldman Sachs and was not required or requested by any other party. We regret the consequences of this decision, but Goldman Sachs believes this is the most prudent path to take."

The good news, however, is that foreign investors are not covered by American law, meaning that Goldman can still raise billions of dollars for Facebook, as long as no American investors are involved. The rest of us, meanwhile, will just have to find something else to buy with our extra $2 million.

Tags: banks, facebook, finance, GoldmanSachs, Investment, InvestmentBanking, ipo, money, shares, SocialNetworking, stocks, top

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