Goldman Sachs’s $450 million investment in Facebookhas raised many questions.
499 Holders Goldman Sachs is offering $1.5 billion worth of Facebook shares to its private clients. The clients will not hold the shares directly but will invest in a special investment vehicle that will hold the shares on their behalf.
Questions have arisen about whether this share issuance will push Facebook over 499 shareholders. Under federal securities laws — Section 12(g) of the Securities Exchange Act of 1934 — a company is required to begin reporting to the Securities and Exchange Commission, filing quarterly and annual reports among other items, once it has more than 499 shareholders of record. This does not mean it needs to do an initial public offering, just commence these filings. The requirement to begin reporting is effective 120 days after the end of the fiscal year a company exceeded this amount. So, if Facebook goes over the amount this year, they are required to start reporting to the S.E.C. in early May of 2012.
Offering Violation The securities law issue here rests on whether there is a “general solicitation” such that this becomes a “public offering.” The federal securities laws strictly regulate any offering of shares. A company or underwriter like Goldman must find an exemption or otherwise register the securities with the S.E.C. The Facebook shares are not being registered, so Facebook and Goldman are relying on an exemption.
Goldman Goldman is offering Facebook shares to its clients. Goldman here is an investment adviser to these clients, so it does have a fiduciary responsibility to know its customers and recommend appropriate investments. Individual investors, however, may have different tastes for risk and different returns than Goldman’sprivate equity arm. The Goldman clients may be willing to accept a lower return for other reasons like the security of knowing that the valuation is unlikely to go down, as part of a portfolio that allows for more speculation, etc. No doubt Goldman has disclosed the risks associated with Facebook copiously, and if investors, being fully informed of the material facts here, still want to invest, Goldman is doing its job.
And end that’s a rumor that facebook is closing , that privacy leaking network is not ending till by March 15 2011.