Facebook's Initial Plutocrat Offering

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The New Yorker's John Cassidy points out that Goldman Sachs' plan to allow its private clients to invest in Facebook is designed to circumvent the Securities and Exchange Commission rules about which companeis must go public. The way Cassidy tells it, this is a blatant contravention of the spirit (at least) of the rules. Goldman will act as a passthrough for their wealthy investors to funnel cash to the company without triggering the the rule that a company with more than 500 investors has to go public.

In other words, the Goldman deal is an Initial Plutocrat Offering, possibly followed by the Initial Plebeian Offering some time down the line, once all the money's been made.

As part of the deal, Goldman will reportedly invest $450 million in Facebook and Digital Sky Technologies, a Russian investment firm which already has a substantial stake in the social network platform, will invest another $50 million, but that is only stage one. In stage two, according to Dealbook, "Goldman is expected to raise as much as $1.5 billion from investors for Facebook at the $50 billion valuation, people involved in the discussions said."

The story goes on: "While the S.E.C. requires companies with more than 499 investors to disclose their financial results to the public, Goldman's proposed special purpose vehicle may be able get around such a rule because it would be managed by Goldman and considered just one investor, even though it could conceivably be pooling investments from thousands of clients." ...

Goldman again appears to be trying to twist the securities laws for the benefit of itself and one of its clients--Facebook.

Read the full story at The New Yorker.

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Alexis C. Madrigal

Alexis Madrigal is a senior editor at The Atlantic, where he oversees the Technology Channel. He's the author of Powering the Dream: The History and Promise of Green Technology. More

The New York Observer calls Madrigal "for all intents and purposes, the perfect modern reporter." He co-founded Longshot magazine, a high-speed media experiment that garnered attention from The New York Times, The Wall Street Journal, and the BBC. While at Wired.com, he built Wired Science into one of the most popular blogs in the world. The site was nominated for best magazine blog by the MPA and best science Web site in the 2009 Webby Awards. He also co-founded Haiti ReWired, a groundbreaking community dedicated to the discussion of technology, infrastructure, and the future of Haiti.

He's spoken at Stanford, CalTech, Berkeley, SXSW, E3, and the National Renewable Energy Laboratory, and his writing was anthologized in Best Technology Writing 2010 (Yale University Press).

Madrigal is a visiting scholar at the University of California at Berkeley's Office for the History of Science and Technology. Born in Mexico City, he grew up in the exurbs north of Portland, Oregon, and now lives in Oakland.

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