Goldman Sachs Group halted an offering of Facebook Inc. shares to U.S. investors out of concern that "intense media attention" on the deal may violate rules limiting marketing of private securities.
Instead, the sale, first reported Jan. 2, will be restricted to non-U.S. investors, the New York-based bank said in an e-mailed statement Monday. Goldman Sachs and funds that it manages had agreed to buy $450 million of closely held Facebook shares before the bank began seeking investors.
"Goldman Sachs 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," it said. The move "was based on the sole judgment of Goldman Sachs and was not required or requested by any other party."
Goldman Sachs, the biggest U.S. securities firm before converting to a bank in 2008, had been trying to sell as much as $1.5 billion in Facebook shares to investors inside and outside the U.S. before making the change announced Monday. The company didn't say whether it still expects to raise that amount. The target is still achievable, according to a person with knowledge of the bank's plan who declined to be identified because it isn't public.
"Goldman's U.S. clients will be disappointed," said Randy Hawks, a managing director of venture capital firm Claremont Creek Ventures of Oakland, Calif., which has $300 million under management.
A Facebook spokesman, Jonathan Thaw, said Goldman Sachs is "in the best position to answer any questions."
"It certainly is not going to be happy for the people who put the time into analyzing the investment and didn't get any," said Peter Hahn, a lecturer on corporate finance at Cass Business School in London. "But this transaction seems like a unique enough one that it's hard to think there will be any long-lasting damage" for Goldman Sachs.
The limited sale may raise questions about whether it makes sense for the U.S. to restrict marketing of securities offerings that are only for sophisticated investors, Hahn said.
"Does this suggest that U.S. laws are prohibiting a certain group of investors from funding U.S. companies?" he said. "You might see some significant U.S. investors suggest that this is a negative for the U.S. economy."
If Goldman Sachs had proceeded with the sale to U.S. investors, there was a risk that regulators could later conclude that media coverage had violated rules for a private placement, said the person with knowledge of the bank's decision. If that had happened after the deal, Facebook might have been told to repurchase shares or register as a public company, the person said.
In its statement, Goldman Sachs said "we regret the consequences of this decision, but Goldman Sachs believes this is the most prudent path to take."