The biggest business story of the New Year broke in the wee hours of its first business day when the New York Times reported that Goldman Sachs was offering shares in Facebook to wealthy clients before an expected public offering in 2012. DealBook reporter Andrew Ross Sorkin wrote that Goldman considered Facebook worth $50 billion, and that Facebook already had raised $500 million from Goldman and Russian investor Digital Sky Technologies. Reactions were immediate, ranging from where that puts Facebook compared to other tech companies in the public market, to the credibility and impact of that valuation, to implications for our regulatory system when wealthy insiders have special access. Missing from the debate is how to use social media to fight back against this kind of creeping corporate and financial oligarchy at a time when the rich continue to get richer while the economy continues to teeter.
“The new money will give Facebook more firepower to steal away valuable employees, develop new products and possibly pursue acquisitions — all without being a publicly traded company,” Sorkin wrote. Facebook began to pursue this option earlier this year, according to corporate governance strategist Doug Y. Park, although the Goldman move may trigger the 500-shareholder rule.
Public policy issues include:
- For companies: Whether companies are improperly using the private market to get around public disclosure requirements. Once a company hits 500 shareholders, it must disclose certain financial information to the public, even if it hasn’t filed for an initial public offering (IPO);
- For private markets: How the SEC should handle not only this agreement but the rapid growth of shadow markets such as SharesPost and SecondMarket that trade privately held shares of popular social networking sites such as Facebook, Twitter, the gaming site Zynga and LinkedIn. TechCrunch reports that investors buy shares on these markets with “little to no knowledge of the actual financial results of the underlying companies”;
- For the rest of us: Why ordinary investors can’t get in on the deal—when they’re likely to be among the 500 million active Facebook users that make Facebook such a hot property in the first place.
“Goldman’s latest wheeze seems to be designed to let him have his cake and eat it,” says The New Yorker’s John Cassidy, referring to Facebook founder Mark Zuckerberg’s aversion to going public and Goldman’s history of twisting securities laws to benefit itself. “Where is the SEC?” Cassidy asks. Goldman’s “special purpose vehicle” is exclusive, and expected to raise $1.5 billion, DealBook said. Investors have to “pony up” a minimum of $2 million to invest and would be prohibited from selling their shares until 2013”.
Isn’t it ironic? Social media, powered by millions of regular people, now becomes a ticket to wealth for a favored few. But there’s another angle: Social media can be a powerful vehicle for fighting against Wall Street oligarchs. As we wrote last August in “The Four E’s of Social Media and Sustainability” – to which we received great comments from readers who added more “E’s” to the list – social media empowers us to hold corporations and financial institutions accountable in ways that have yet to be fully exploited. It enables us to campaign against wrongful action, form alliances and partnerships with like-minded groups (or those having similar goals), educate a broader public about what we all can do to promote sustainable and just capital markets, and create new platforms for accountability and transparency.
The Goldman – Facebook deal asks what we are worth to them. The real question is, what are we worth to ourselves—and a healthy, fair marketplace and society?
Update: New links have been added since Monday’s original posting.