Facebook's Initial Plutocrat Offering

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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