SEC to investigate Goldman Sachs investment fund, news report claims

6 January 2011

The Securities and Exchange Commission (SEC) is to launch an investigation into disclosure rules surrounding the finances of privately-owned firms following Goldman Sachs’ investment in Facebook earlier in the week.

According to the Wall Street Journal (WSJ), which cited unnamed sources familiar with the matter, it is the recent investment and subsequent creation of an investment fund for the bank’s high net clients to acquire Facebook stock which is believed to have prompted the regulator to launch the investigation.

Goldman Sachs, together with Russian firm Digital Sky Technologies, reportedly invested a total of $500 million into the social networking website in a move which placed its value at $50 billion.

An investment vehicle is thought to have been created for Goldman’s more wealthy clients to acquire shares in the Internet firm and could see Facebook raising a further $1.5 billion worth of equity.

The SEC is to examine whether the set up of this type of investment fund deliberately goes against rules requiring firms with more than 500 shareholders to publicly unveil their financial figures, the news provider reported.

Keith Bishop, a partner at law firm Allen Matkins and a former California commissioner of corporations, told the WSJ: "The bigger issue is these hybrid companies … are betwixt and between: not quite private and not quite public.

"They have these shares being traded but not the same disclosure requirements as a public company."

The social networking website currently has approximately 500 million monthly users.

By Jim Ottewill

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