What Really Spoiled the Facebook-Goldman Deal?

Goldman Sachs giveth, and Goldman Sachs taketh away. The firm made waves last week by offering its wealthiest U.S. clients a crack at shares of web superstar Facebook. The $1.5 billion private sale of stock valued the social network at $50 billion. 

But now, in an embarrassing reversal, Goldman has decided not to offer the shares to any U.S. clients, blaming the retraction on the intense media scrutiny. “Goldman Sachs concluded that the level of media attention might not be consistent with the proper completion of a U.S. private placement under U.S. law.”

That’s a reference to the Securities and Exchange Commission’s obscure Regulation D, which bans firms from advertising or publishing information about stock that’s being offered in a private placement. 

But as Fortune‘s Dan Primack points out, that’s a bunch of bunk. “Violations of Regulation D are rarely pursued by the SEC. I’ve reported on hundreds of active private placements, and never once has the relevant issuer been charged (even though, in some cases, the leaker has been fairly obvious).”

The real issue here may have been the light this news threw on the entire secondary market. The sales of stock on sites like SecondMarket and SharePost has provided liquidity for companies like Facebook, allowing them to reward early investors and employees without having to go public. Goldman’s special purpose vehicle was intended to do the same thing, but on a much larger scale. 

Following all the media attention on the deal, the SEC opened an investigation and criticism of the secondary markets began to swirl in the press. Rather than see that golden goose slaughtered, is it possible Facebook asked Goldman to pursue a more conservative path for its stock offering? 

bpopper at observer dot com – @benpopper

What Really Spoiled the Facebook-Goldman Deal?