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