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Is Social Media Stocks An End-Run Around The Securities Exchange Commission?

Social media stock that you can purchase before a social network goes public has become the hot ticket in social media circles. In my post, "Social Media Stock Market Don't Need No Stinkin' IPOs," I noted several financial vehicles that sell these types of stocks direct to pubic, while they are still private companies. However none have caught as much flack as the Goldman-Sachs-Facebook deal.

With this one brokerage firm investing $450+ million in Facebook, it was relying on its clout to attract over investors to boost Facebook's valuation past its current $50 billion milestone. Because, as we all know Goldman does not invest willy-nilly in any company unless it is able to garner a quick return on its investment. So, while the $50 billion number has been bantered around, already critics are saying that valuation is over-inflated by at least $20 billion.

Which brings us to the recent announcement released by Goldman  this week indicating they had decided not to offer Facebook shares to it US clients anymore based on the intense media attention that has perked the ears of the SEC.

The statement noted that Goldman had "concluded the level of media attention might not be consistent with the proper completions of a US private placement under US law."

The deal was widely criticized as an 'end-run' around SEC regulations requiring financial disclosures from private companies with more than 500 shareholders. At last count, Facebook was seriously pushing that number, if it hasn't reached it already - hence the move by GS to appeal to foreign versus domestic investments. Instead, the deal will only be offered to the banks's offshore clients that as we all know don't have to play by the same SEC rules.

According to Bloomberg report, GS will be collecting handsome fees from big-moneyed clients and their potential investments in Facebook, as outlined here…


So who's to blame for this sloppy investment transaction now that it appears to be back-pedalling its way into other countries to make it work? According to a Wall Street Journal report, an unidentified source from Facebook says the social-networking site's executives blame Goldman for the mess but decided to proceed with the deal anyway.

I guess when Gordon Gecko updated his famous quote in "Wall Street: Money Never Sleeps" from "Greed is good!" to "Greed isn't just good anymore, it's legal!" - was totally on the mark!

For other posts relating to social media stocks, Facebook's IPO challengs and the Goldman-Sachs deal, please check out the following:

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Ron Callari
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