Wary of how federal regulators might react to its plan, Goldman Sachs has decided not to sell shares of Facebook to U.S. investors. The turnabout was a result of too much public exposure of the plan, which Goldman officials initially didn’t seem to recognize as a potential problem.

 

The firm announced Monday that it would sell Facebook shares to non-U.S. investors only. It explained the decision by noting that their original intention of selling a $1.5 billion stake to domestic buyers garnered a “level of media attention” that was not “consistent with the proper completion of a U.S. private placement under U.S. law.”

 

In other words, Goldman was worried the Securities and Exchange Commission (SEC) might have begun an investigation if the investment bank made shares available to Americans. Federal securities laws restrict advertisements and solicitations of stock offered in private placements.

 

Peter Hahn, a lecturer in corporate finance at Cass Business School in London, said Goldman should have known that once they started talking about the Facebook offering, the word was going to spread. “If I invited my 500 best friends to a party, would it be a secret? And the answer is no,” Hahn told Bloomberg News.

 

Last July, the SEC forced Goldman Sachs to pay a $550 million penalty for defrauding investors in the Abacus hedge fund.

-Noel Brinkerhoff

 

Goldman Fails to See Hype That Derailed Facebook’s Private Sale (by Christine Harper, Bloomberg)

Why Did Goldman Blink? (by Steven M. Davidoff, New York Times)

Facebook Flop Riles Goldman Clients (by Anupreeta Das, Robert Frank and Liz Rappaport, Wall Street Journal)