ECON WITH NEDA: Financial giant backs out of Facebook deal

Neda Ghomeshi / Columnist

By: Neda Ghomeshi / Assistant Opinion Editor

Just over a week after Goldman Sachs offered its most prized and selective clients a chance to invest in Facebook, the firm randomly announced on Jan. 17, 2011, that it withdrew the opportunity from their clients in the United States. However, Goldman Sachs said, “In light of this intense media coverage, Goldman Sachs has decided to proceed only with the offer to investors outside the United States.”

I think a contributing reason to Goldman Sachs’ withdrawal is, in part, a result of the regulations set by the Security and Exchanges Commission. Essentially, Goldman Sachs decided to prevent a legal fiasco.

On Jan. 2, 2011, The New York Times Dealbook reported that Goldman Sachs reached out to its private clients with a chance to invest in Facebook, the hot social networking giant currently dominating the Web. With the sudden change of plans,  it is unknown what Goldman Sachs is going to offer its clients.

According to The New York Times, “It is unclear how much money Goldman will raise for Facebook.” In a private memorandum to U.S. clients when Goldman Sachs originally made the offering, the plan was to raise as much as $1.5 billion. The overall deal would have valued Facebook at $50 billion, making it worth more than companies like eBay and Yahoo. The recent withdrawal from the plan is not completely warranted and people -including myself- are questioning the move. The only logical reason to back out of a plan like this is legality.

It is rumored that Facebook will become public to all investors in 2013. In the first  memo sent out to selected clients, the firm warned prospective investors that if they invest, they will not be able to trade Facebook stock in a private marketplace. With the investment structure in its initial plan, Goldman Sachs had strategically prepared itself for a successful future, which is why it is odd that the plan was drastically revamped.

Facebook is not a publicly traded company, however, it trades on secondary markets. Goldman Sachs is conveniently positioning itself as the leading candidate to win the lucrative and prestigious assignment of Facebook’s initial public offering – we all know that day is coming relatively soon. Due to Facebook’s promising future, the sudden change of plan leaves investors and spectators, especially in the U.S., curious.

The sudden decision to pull out of this investment in the United States remains ambiguous. I think that the original investment plan would have breached U.S. regulations designed to restrict share trading in private companies.

Goldman Sachs and Facebook have both decided to remain silent on this matter. This leaves us followers and those prestigious American clients very confused.

Econ with Neda is a bi-weekly economics column. To submit story ideas, email

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