Will Goldman Let Clients Buy Private Stakes In Facebook?

With the Securities and Exchanges Commission already investigating trades of Facebook stock on private marketplaces, how will the regulator react to a proposed $1.5 billion "special purpose vehicle" for Goldman Sachs clients to participate in Facebook investments?

The Goldman Sachs investment of $450 million in Facebook also includes a provision to create a $1.5 billion fund that would allow participation by clientele of the prestigious Wall Street firm.

It’s one thing to allow accredited investors to buy into such a fund, and something entirely different to open it up to high-net-worth individuals. The Securities and Exchanges Commission is already investigating trades in Facebook shares on private marketplaces. So would a $1.5 billion “special purpose vehicle” created by Goldman Sachs raise a red flag with the SEC?

It seems more likely that the SEC would pressure the social network to do an initial public offering instead, and Goldman would make a logical choice for lead underwriter of the deal. The investment bank consistently ranks among the top financial institutions in the IPO business, and such a transaction could easily multiply the value of its new $450 million stake.

The SEC draws the line between public and privately held companies at 500 shareholders. Facebook had apparently sought and obtained an exception from the regulator to grant shares to employees in 2008. Any further extension of the ownership beyond the existing private stakeholders may force the regulator’s hand.

Readers, what do you think about Goldman Sachs’ plans to create this $1.5 billion “special purpose vehicle” for clients to invest in Facebook? Will the SEC allow this or force an IPO instead?