Goldman Retreat on Facebook Raises Issues of Media Complicity in 2008 Global Meltdown

Little more than a week after Goldman Sachs offered its most prized clients a chance to invest in Facebook,

the firm rescinded the opportunity from clients in the United States.

Little more than a week after Goldman Sachs offered its most prized clients a chance to invest in Facebook,

the firm rescinded the opportunity from clients in the United States.

Within days of the news breaking about the offering, the S.E.C. began an inquiry into the deal,

looking both at the media reports and the structure of the transaction.

The deal itself was considered controversial because the S.E.C. requires companies

to publicly disclose their financial results if they have more than 499 investors,

as we noted as soon as knowledge of the deal became public.

The “special purpose vehicle” that Goldman had created for Facebook

would have allowed it to remain under that threshold,

even though hundreds of Goldman’s clients would in fact have been shareholders.

The withdrawal of the offer — which valued Facebook at $50 billion — is a major embarrassment for Goldman,

which had marketed the investment to its wealthiest clients, including corporate magnates and directors of the nation’s largest companies.

And in the past two weeks, the relationship between Facebook and Goldman has grown increasingly tense, people involved in the offering said.

Accusations about the news leak have flown back and forth, these people said.

The offering was supposed to have been a triumph for the firm,

which is trying to move past its previous run-in with regulators,

including its $550 million settlement with the SEC over a complex mortgage investment.

The Facebook proposal is now likely to raise new questions about

whether the firm was trying to push regulatory boundaries once again.

The struggles of the offering may also deal a blow to Goldman’s relationship to Facebook in other areas,

specifically the firm’s prospects of leading the social network’s long-awaited initial public offering, expected in 2012.

Goldman said it rescinded the offering to U.S. clients because of the scrutiny from the S.E.C.,

which had opened an inquiry into the structure of the offering,

and whether it violated the law because the deal had been widely reported on in the media.

An article in The New York Times’s DealBook, published late on Jan. 2, reported

Goldman had invested $450 million in Facebook and would create a special-purpose investment vehicle for clients.

Goldman had not been planning to commence the offering the night the article was published,

but sped up the process after a New York Times reporter called the firm seeking comment,

according to an executive who requested anonymity because he was not authorized to speak publicly.

Late that night, before DealBook published the article, executives in Goldman’s private wealth management unit

e-mailed their clients about the offering, people who received the e-mail said.

Federal and state regulations prohibit what is known as “general solicitation and advertising” in private offerings.

Firms like Goldman seeking to raise money cannot take action that resembles public promoting of the offering, like buying advertisements or communicating with media outlets.

Foreign investors will still be able to participate in the Goldman offering

because they are not subject to the S.E.C. rules on solicitation in private offerings.

However, all partners of Goldman, whether based in the United States or abroad,

will NOT be allowed to participate in the offering anymore,

according to people with knowledge of the matter.

It is now unclear how much money Goldman Sachs will ultimately raise for Facebook

In a private memorandum to clients when it pitched the offering, it said it planned to raise as much as $1.5 billion.

While the offering was initially oversubscribed — perhaps by as much as three times —

with American clients now not eligible to participate,

it is not clear whether Goldman or Facebook will lower the size of the offering,

according to this article in the New York Times.

All of which raises a key question:

If business media had been as aggressive in covering the Wall Street chicanery

that led to the near-collapse of the global financial system in Black September 2008,

could enough whistles have been blown in time to avoid the meltdown that DID take place –

one that triggered a real economic disaster from which the developed world has yet to recover ???

If so, that would profoundly implicate a corporate-compliant business media even more

for the mess in which the US and Europe still find themselves today, more than two years on.

 

David Caploe PhD

Editor-in-Chief

EconomyWatch.com

President / acalaha.com