Goldman-Facebook Deal Raises Debate on Investor Pool


After news broke of the investment by Goldman Sachs in the social networking siteFacebook, a harsh spotlight was cast on a nearly 50-year-old law that limits the number of shareholders in a private company.

In 1964, regulators started requiring companies with more than 499 shareholders to publicly report their financial results. It is a rule that has been debated from the outset — and the issues raised now are the same ones raised then.

The Securities and Exchange Commission is examining the frenzied buying and selling of Facebook shares and other private technology companies in the secondary market.

To some, the structure of the Goldman deal merely looks like a way to circumvent the law. Through a special purpose vehicle, the firm could potentially pool money from thousands of wealthy clients and still be considered one investor because the entity would be managed by Goldman.

Section 12 (g) of the Securities Exchange Act of 1934 came about in the 1960s as over-the-counter trading in shares of privately held companies began to heat up and regulators worried that investors were not getting enough information.

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