Dangerous Liaison: Goldman, Zuckerberg and Facebook

The alliance that rocked the investment community, is making new headlines as the dust settles on the $450 million transaction. The awe inspiring transaction that made Mark Zuckerberg’s net worth more than triple, was structured to take advantage of loop holes in the SEC regulations to raise capital for Facebook. The SEC’s regulatory concerns were entirely justified, but may have been egged on by the media attention to the Goldman continued above-the-law attitude. According to the SEC regs, corporations with more than 499 investors must disclose their financials to the public. To circumvent this provision, Goldman’s bankers have set up a ”Special Purpose” vehicle which establishes Goldman Sachs as the fund manager, and sole investor. The sole investor of record could then seek to pool outside investments.

Initially the small investors were shunned, since Goldman opened the Facebook financing exclusively for its wealthiest clients, seeking larger denominations. The (clearly unwanted) attention to the behind the scenes deal has sparked a new ripple in this financing. Now, it appears that US investors are being left out all together. At this juncture, it is reported that no U.S. investor will be afforded the opportunity to invest in the transaction – large or small. This is probably one of the most sought after investment of the decade – for those who are serious players in the investment community, this is the transaction of a lifetime, and now is the Facebook shares have been taken off the U.S. market. Goldman seeks to avoid the glaring eyes of the SEC by looking overseas for their investors.


K Reilly
The Cohn-Reilly Report

Verizon Gets the iPhone

The long awaited news finally came today, announced in a joint meeting with Apple in New York City. This will end AT&T’s three plus years of strong growth driven by its monopolistic hold on the iPhone.Verizon will start shipping to customers as early as February.

Many analysts expect AT&T to lose contract customers this quarter without a powerful, unique incentive to lure subscribers.The operator also suffers from a perception that its wireless network is ill-equipped to handle iPhone users' heavy data usage. AT&T could lose up to 3.5 million customers, although it will take time for that to happen due to contractual obligations. AT&T will also face additional pressures from Verizon Wireless, which may offer new iPhone customers the same privileges all of its smartphone customers enjoy: unlimited wireless data usage for a flat monthly fee.

Verizon will initially take a hit on its Earnings Per Share, due to the subsidy it will incur for the iPhone. However, in the long run it will profit greatly from the increased customer base. Overall, a great coup for Verizon.

C. Cohn
Cohn-Reilly Report

Goldman, Zuckerberg and Facebook: Taking No Prisoners

One of the Oldest investment banking firms pairs up with the youngest billionaire in the world to form a strategic alliance of huge proportions.
Goldman Sachs is in the news again regarding a questionable transaction involving Facebook. The 26-year old billionaire, Mark Zuckerberg is the beneficiary of Goldman’s creative financing, while SEC Chief Mary Shapiro is being prodded to investigate by New Yorker's John Cassidy. Apparently Goldman established a “Special Purpose” vehicle to create an opportunity for its high net worth clients to invest in Facebook, which is not yet publicly traded. This is raising eyebrows and even concern. Why? Because the SEC requires companies with more than 499 investors to disclose their financial results to the public. To get around this provision, Goldman’s "best and brightest" have hatched a Special Purpose vehicle which establishes Goldman Sachs(fund manager) as “one” investor, who could be pooling investments from thousands of clients. Nice Work.

Facebook ‘s valuation was estimated to be $50 billion, which is more than EBay Inc.’s value of $39.3 billion , placing it third in the competitive internet businesses, just under Amazon ($74.4 billion) and Google ($192.9 billion). This makes it official: social-networking is serious business, attracting over a half a billion global users and more advertisers than ever imagined 6 years ago.

According to the Huffington Post , a Georgetown University professor, James Angel, opines that the special purpose vehicle can still be ruled illegal if it can be proven that it was specifically designed to circumvent the SEC rules. The Times reported that the SEC is “looking into” the hot trading market of privately held shares of networking sites. Given the backlash the investment bank suffered last year, I can't see the legal minds at Goldman leaving any room for more legal battles and negative press.

The Goldman and Zuckerberg combo is more likely to be poised for massive success, rather than trouble from the SEC. Time Magazine names Mark Zuckerberg "Person of The Year" However, I would not be surprised if media pressure forces the SEC's hand to launch an official probe.

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K Reilly
Cohn-Reilly Report

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-COMMENT HIGHLIGHTS-

________________Comment
Anonymous said......

Extraordinary submit! Will you follow-up on this specific matter?
January 9, 2011

________________Comment
K. Reilly said...
Yes, I will be following up on this matter. This is certainly an intriguing set of circumstances, so it would be interesting to see how the dynamics of this liaison plays out. Wow...I think I have the heading for the follow-up article: Dangerous liaison.
Anyway, thanks - your feedback is much appreciated.
January 9, 2011

Check out the new Music and Art Forum on BlogSpot! "Its a refreshing departure from economics. it's like life's little desert snack."doARTorDIE

New Jobs Growth in December. Highest one-month increase in a decade:

There were reportedly 297,000 jobs created in December, according to the ADP National Employment Report. Raising news hopes and aspirations for the U.S. economy. "Great News" I thought, Kudos to the White House, who had been saying all along that it will take some time, but we should begin to see the fruits of their stimulus programs soon. Soon was longer than we were willing to wait, as the midterm elections spoke volumes about the voters’frustration, and the President's popularity declined. As the employment data came trickling in from Bureau of Labor Statistics (BLS) the "jobs created" number for December was much less impressive. In fact, it was below expectations.

I read several articles and reports and found many different approaches to how these figures were stated. It is easy to see how this could be confusing to the average citizen. Perhaps the discrepancy was in the "gross" jobs created versus "net" jobs created. I read a few reports from the BLS's Unemployment Statistics for December (which was like deciphering the DeVinci Code) and verified that the drastic drop in jobs growth was due to the nearly 200,000 jobs that were lost last month - bringing the net increase to 103,000. Meanwhile, the relatively big drop in the unemployment rate was due to those who are no longer receiving unemployment benefits, thus no longer included in the unemployment "count". This is unfortunately a warped way of accounting for the unemployed. For a while there was a movement to establish a better accounting system for deriving more realistic figures, but that seems to have fizzled.

We have seen the Retail market rebound, the Stock Market flourish, Tourism explode and record Corporate Revenues, but the Unemployment Rate remains a sore spot, and the source of much criticism of the Obama Administration.

Say what they want, there were actually 297,000 new jobs created in December and that illustrates that businesses are feeling better about the future stability of this country. With 12 straight months of job growth, and 1.3 million new jobs created in 2010, we can safely say that Corporations are no longer sitting on cash, reluctant to expand their workforce. The economy is gaining traction, and the Republicans will not be able to take credit for this one. Let's Hope that this is finally a true sign of better days ahead.

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K. Reilly
Cohn-Reilly Report

Milton Wolf's Global Forecast

The world crisis is a problem for politicians and economists alike. Politics has used the crisis to their advantage in some cases. In the US careers have been made and destroyed as a result of this serious global financial discord. According to Milton Wolf the U.S. is in recovery. Wolf went on to say that the financial System has been saved, lead by the feds and very aggressive policies. "The CentralBank has done a good job managing the global crisis. In aggregate, we saved the financial system, and the Central Bank has been aggressive to keep the banks liquid. The Central Banks have ignored the criticism, and they have brought us to recovery"

That said, there needs to be some adjustment in the EU Zone. Members of the European Union had indulged in a lot of bad lending and borrowing practices. This is illutrated by the spreading financial troubles in Portugal, Belgium and Spain, after bailouts offered to Ireland and Greece. The EU Zone (with the help of IMF) has provided just enough money to avoid defaults. Given the financial crisis, the Euro, may cease to exist anytime soon. The world crisis is a problem for politicians and economists alike. Politicians has used the crisis to their advantage in some cases. In the US careers have been made and destroyed as a result of this serious global financial discord.

Listen to Milton Wolf's view of the Global Economy, and what can we expects. Click Here

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K. Reilly
Cohn-Reilly Report