Goldman Sachs Facebook deal and the IPO

Facebook logo - Goldman Sachs

Goldman Sachs – MoneyBlogNewz/Flickr.com/CC-BY

When Goldman Sachs invested $450 million into Facebook, it was big news on Wall Street. They made the news again when people sued Facebook and Goldman Sachs for misleading investors. Where does this leave people today? The Goldman Sachs Facebook deal, plus an additional $50 million investment from a Russian firm, gave Facebook an implied market value of $50 billion, but the question of Facebook’s true value led to the lawsuits.

The Goldman Sachs Facebook deal

The Goldman Sachs investment gave the social networking phenom more implied market value than eBay, Yahoo and Time Warner. Digital Sky Technologies, a Russian investment firm, added $50 million to its stake in Facebook. In 2009 DST paid $200 million for a 2 percent stake in Facebook, and by buying shares from Facebook employees is reported to have increased its stake to about 10 percent. Facebook had to go public because they eventually had over 500 shareholders. In 2010 Facebook became the most visited website, surpassing even Google. That year Facebook’s revenues were reported to be approaching $2 billion.

The Volker Rule May Have Pushed Goldman to Invest Prematurely

Goldman Sachs timing couldn’t have been an accident either. In the wake of the Dodd-Frank financial reform bill. The “Volker rule” was implemented as part of the financial reform. The Volker rule limits the investments Wall Street banks can make with their own money. The bill had a provision that allows some time for investors to comply, but Goldman was against a clock to invest a certain amount of money or be in violation of the Volker rule.

The Law Suit on Goldman and Facebook

Goldman Sachs, Facebook, JP Morgan Chase, and some underwriters were sued for being misled into buying Facebook stock that quickly showed to be worth less than the original claims. So what happened? Did the class action suit prove to have some merit? Were you involved in the suit? Leave some feedback and let us know where you stand on the issue.

Sources

New York Times

Financial Times

PC World

 

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