The Fallout from Goldman's Botched Facebook Offering

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The jig is up. Worried about the level of "media attention" the company was getting for its private offering of $1.5 billion in Facebook shares, Goldman Sachs is terminating its plan to let U.S. clients invest in the social network. Securities law in the U.S. discourages companies from publicizing private offerings. But since the deal was leaked to The New York Times earlier this month, coverage of the arrangement has been intense. Avoiding U.S. regulatory scrutiny, Goldman will simply offer the deal to its clients abroad. Here's what finance pundits are saying about the botched deal:

A person close to the Facebook deal blamed a leak in early January for provoking a "publicity-driven feeding frenzy" that made it too risky to continue with the offer to US investors.

The Securities and Exchange Commission could have disallowed investments by US investors if it later decided that the rules limiting promotion had been broken, this person said. Some observers questioned Goldman’s handling of the deal and suggested it was almost guaranteed to draw regulatory scrutiny.

  • Goldman Has Egg On Its Face, writes Andrew Ross Sorkin at The New York Times, explaining that "the decision is a considered a serious embarrassment," as Goldman "had marketed the investment to its wealthiest clients, including corporate magnates and directors of the nation's largest companies."
  • The Times Ruined This for Goldman  "It seems," writes Mike Masnick at Tech Dirt, "that Goldman was becoming worried that all of the public scrutiny on this deal was suddenly getting mighty close to being a 'public offering' type of situation, in which the SEC could conceivably step in and claim that it needs to follow all of the standard IPO rules--which it had not been doing. Goldman has apparently hoped to keep everything a lot more quiet, but the NY Times broke the story, and then everyone else piled on."
  • Loose-Lipped Investors Didn't Help Either, adds Jackie Cohen at All Facebook, pointing out the role of the leaker, not just the leaked-to organization: "Goldman had repeatedly told prospective investors not to disclose any details about the private offering, but obviously some leaked information and even shared copies of the offering memoranda with the financial news media."
  • Losers: 'The U.S. Investors Who Wanted to Buy Facebook Stock,' These are "the same investors that the SEC is supposedly protecting," writes Nicholas Carlson at Business Insider: "Goldman is powerful enough that it can sell Facebook stock outside the SEC's jurisdiction, and that's exactly what it's doing."
  • This Makes Me Slightly Less Angry With Facebook, writes Sharon Machlis at Computer World:
I'd been considering cutting back on my personal use of Facebook if this deal went through, since the more I heard about this financing deal, the angrier I got that the company was allowing its investment firm to so brazenly flout the intent of our financial laws--regulations aimed at protecting American investors. Those laws were instituted to try to level the financial playing field at least a little, between the wealthy, powerful and well-connected and everyone else. Now? I'm happy Facebook and Goldman Sachs aren't flouting the law.
  • Here's a Lesson for Other Startups Looking to Do Business with Goldman, advises Joe Weisenthal at Business Insider: "If you're a tech company like Groupon (or anyone else looking to IPO), if nothing else you might wonder about the wisdom of working with a company that has regulators breathing so heavily down its neck."

This article is from the archive of our partner The Wire.