Commuting to work today, after refreshing my NY Times Droid app for the first time in a week, the #2 article of the day was that Goldman Sachs, recipient of TARP money and a Russian investor, invested $500 million in Facebook.
It is well known that Mark Zuckerberg, values his autonomy and will do anything within his power to put off the day of reckoning when he will have to run a public company.
However, this move has chutzpah written all over it. You see, the SEC has certain requirements regarding the number of investors a company may have before it goes public. That number is 500, and Facebook will do whatever it takes before it will reach that number.
Goldman will create a fund where it is the sole investor of Facebook shares. Even though potentially thousands of people will invest in this new fund, Facebook will be able to circumvent the 500 investor number by pooling assets. The wealthy who invest with Goldman will come out as potential bandits, while the general public will be locked out.
With the emergence of private exchanges such as Secondmarket, shares of private companies can be bought and sold without the regulation of the SEC. Wait until one of these unregulated companies goes belly up. You will see our tax dollars bailing them out. Goldman can’t loose here. I don’t know about you, but I’m going to call my broker and find out how I can get in on a piece of the action.
What do you think of these unregulated private exchanges? Should they be banned or is it a fair way for employees to cash out on difficult to sell shares?
For more reading:
The New Yorker: Facebook-Goldman: Where is the SEC?
Wall Street Journal: Facebook IPO: Could Zuckerberg Be a Permanent Holdout?
New York Times: Goldman Invests in Facebook at $50 Billion Valuation
The Law Office of Frederic R. Abramson represents businesses in New York. If you have questions about business law, call our office at 212-233-0666.