Schapiro & Issa Spar Over Who Sent the Goldman Sachs Facebook Offering Offshore

More on the exchange of letters between Representative Darrell Issa and SEC Chairman Mary Schapiro . . . 

In a press release from the time of his March letter to the SEC (the very letter which prompted Chairman Schapiro's letter of last week), Rep. Issa faulted the SEC for causing Goldman Sachs to change its mind about offering to US investors stakes in a fund that would own shares in Facebook.

"'From Bernie Madoff to Enron, the SEC has failed time and again to detect real wrongdoing that cheats investors. But when Facebook, a U.S. company on the cutting edge, sought to raise capital from institutional buyers the SEC was there to smack them down,' said Chairman Issa on sending the letter. 'Directing the SEC's limited resources toward the protection of those that don't need it does not help ordinary investors and will not detect the next Madoff or the next Enron.'"

But Chairman's Schapiro's response rejects the accusation:

"Early this year, it was reported that Facebook and Goldman Sachs & Co. were planning to offer up to $1.5 billion of securities of Facebook to clients of Goldman Sachs residing both inside and outside the United States. Goldman Sachs intended to conduct the offering in the United States as a private placement in reliance on Section 4(2). The transaction received intense media coverage and public interest and, on January 17, 2011, Goldman Sachs announced that it was limiting the offering to investors outside the United States. Goldman Sachs said it '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.' At no point in time did the staff advise or instruct Facebook or Goldman Sachs that the offering could not be conducted in the United States. Moreover, as noted [in a prior release from] 2007 the Commission indicated that the proper analysis of whether a general solicitation occurred focused on whether the investors participating in the offering were actually solicited through the activities which could be viewed as a general solicitation or if, for example, the investors were existing clients or those with whom a pre-existing relationship existed."

Whatever the real reason for excluding US investors from the fund, the offering was, according to a January 21 Facebook press release, successful:

"Today, Goldman Sachs completed an oversubscribed offering to its non-U.S. clients in a fund that invested $1 billion in Facebook Class A common stock. . . . 

"Under the transaction’s terms, Facebook had the option to accept between $375 million and $1.5 billion from the Goldman Sachs overseas offering, at the discretion of Facebook. While the offering was oversubscribed, Facebook made a business decision to limit the offering to $1 billion."

Image: Max B.