Goldman Sachs Group’s plan to offer clients up to $1.5 billion in Facebook equity may invite US regulators to take a closer look at whether the owner of the world’s most popular social-networking site is circumventing disclosure rules, securities lawyers said.
The Securities and Exchange Commission, whose rules require any company with more than 499 investors to disclose financial information, is already scrutinizing the market for trading shares of closely held companies including Facebook, according to a person familiar with the inquiry, who declined to be identified because the matter isn’t public.
Goldman Sachs invested $450 million in Facebook and is planning to create a special purpose vehicle for its clients to make additional investments worth as much as $1.5 billion, according to two people familiar with the matter who spoke on condition of anonymity because the deal is private. Some private companies avoid crossing the disclosure threshold when investors’ funds are channeled through a single entity, such as a private equity firm or hedge fund.
“The real question is, what are the details of this special purpose vehicle?” said James Angel, a professor at Georgetown University’s business school. If the investment is designed to circumvent the rule, “the SEC should be looking very closely at it.”
Further public confirmation of the SEC’s interest in such investment funds came when SecondMarket, which matches buyers and sellers of shares in private companies like Facebook and Twitter, received a request for information from the agency.