Goldman Sachs will offer the chance to invest in Facebook only to its clients outside the United States, the New York Times reports.
Advocates of a strong Securities and Exchange Commission, or those who believe that at $50 billion Facebook is overvalued, will perhaps see this as a success. American investors are protected from investing in Facebook, while foreigners who lack SEC protection are left undefended against Goldman Sachs and Facebook.
Critics of a strong SEC, or those who believe that at $50 billion Facebook is a bargain, will perhaps see this as a disaster. American investors are prevented from investing in Facebook, while foreigners are allowed to. And Facebook is deprived of American capital that it would have otherwise been able to raise.
The Times reports that Goldman blames the decision on excessive press attention, which highlights the odd circumstance that the SEC rules imply that the less press attention that a private placement like this gets, the better off investors are. Usually the opposite view, implied by the First Amendment, applies — that more press coverage creates a better informed investing public.
I tend to come down on the view that the decision on who can invest should be up to those selling the investment (Facebook and Goldman Sachs) and the decision on whether to invest should be up to the potential investors, not the SEC. If five years from now Facebook is worth $200 billion and the foreign investors have made a lot of money while the American investors missed a great opportunity, people will probably be mad at the SEC. If five years from now Facebook is worth $10 billion and the foreign investors have lost a lot of money, Americans who otherwise would have invested will probably be thanking the SEC.
It's an interesting case study in capital markets regulation. In the meantime, Americans who want a piece of Facebook can invest in Goldman Sachs stock — while Goldman's American clients are out of luck (or saved, depending on how one sees it), Goldman the firm was apparently able to make its investment.