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SEC looks into Goldman Sachs-Facebook deal

The home page of Facebook displayed on a laptop screen.

TEXT OF STORY

Kai Ryssdal: The SEC has started sniffing around that Goldman Sachs-Facebook deal, the one that left the social networking site with a paper value of $50 billion. Specifically, the SEC's trying to figure out whether the deal breaks rules about that limit a private company to just 500 shareholders before it has to open its books to regulators. That rule in question is 50 years old, when companies were smaller and start-ups didn't have the Internet to help them get going.

Marketplace's Stacey Vanek Smith reports.


Stacey Vanek Smith: Being a public company has a lot of advantages: people all over the world can buy your shares, and you can raise billions of dollars. But with those perks come rules -- lots of rules. Larry Harris served on the Securities and Exchange Commission and now teaches at USC's business school. He says being private also has its advantages.

Larry Harris: You don't have to report information about your financials to the same extent that you do for a public company.

And there are costs to all that reporting.

Harris: It's expensive and secondly, it lets your competitors know about the state of your business, which Facebook might be very concerned about.

Private companies do have the right to sell stock, but it's restricted to just 500 shareholders. Goldman Sachs and Facebook ginned up a rather elegant solution: Goldman created a kind of trust that invests in Facebook as one investor, and hundreds of Goldman clients can buy into that trust. Suddenly, that one investor is really lots of investors.

Eric Talley teaches securities law at UC Berkeley.

Eric Talley: The SEC undoubtedly is going to be kicking the tires of this deal, and they're probably going to be doing so for a number of months. This is in part because they are wary of the possibility that down the road you're going to see many, many more deals that are mimicking this exact structure.

Talley says once Facebook gets its financial ducks in order, there would be big advantages to leaving the private life. He says all of that information public companies have to disclose is catnip for investors and would likely push the price of Facebook shares way up.

In New York, I'm Stacey Vanek Smith for Marketplace.

About the author

Stacey Vanek Smith is a senior reporter for Marketplace, where she covers banking, consumer finance, housing and advertising.
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Perhaps we're overlooking the obvious possibility that Facebook is not making as much money as everyone thinks and Goldman-Sachs is planning to hedge against these investments once it sells them all.

I've not seen very many ads on facebook lately and most of the ones I have seen were not high-dollar businesses or familiar brands. Today I got an ad, asking me to buy an ad.

Just saying that maybe there's a reason Facebook doesn't want to go public with it's financials.

500 shareholders! Why so high? Let's update the regulation, perhaps to 200.

The devil, a deal with, young Zuckerberg has made. His undoing perhaps? A deceptive atempt to bypass the rules. Or, is it a form of "just kidding", and rather a clever method of preparing to go public.

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