Yesterday I was interviewed by the New York Post regarding my thoughts on why Goldman Sachs yanked its offer to its US clients to invest in Facebook, indirectly via a special purpose entity it set up that would act as a single shareholder of Facebook. You can see the article here. Here is the comment and quote they attributed to me:
Still, some legal experts said that Goldman is being overly cautious as there is little precedent for halting a private deal due to media attention.
"There's just no precedent for a deal being blown up because of hype in the media," said Brian Powers, an attorney specializing in private placements.
My understanding of the deal is that Goldman Sachs was offering shares of the special purpose entity to its high net worth, pre-qualified (i.e. accredited) investors. The deal has been all over the media, as is anything that involves Facebook - and obviously anyone and everyone wanted in on the deal. Problems arose on two fronts. First, the SEC apparently was raising an eye over the requirement that private companies maintain no more than 500 shareholders. I have no idea how many shareholders Facebook has, but the SEC was apparently concerned about this even though technically the Goldman Sachs deal was only creating 1 additional shareholder.
Second, and more importantly the reason being cited by Goldmans Sachs, the intense media attention made Goldman Sachs fear they would run afoul of the proibition against general solicitation and advertising in a private placement of securities - which this was intened to be. The applcable regulation is rule 502(c), which states:
[N]either the issuer nor any person acting on its behalf shall offer or sell the securities by means of any form of general solicitation or general advertising, including, but not limited to, the following:1) Any advertisement, article, notice or other communication published in any newspaper, magazine, or similar media or broadcast over television or radio; and2) Any seminar or meeting whose attendees have been invited by any general solicitation or general advertising.