Hacker News new | past | comments | ask | show | jobs | submit login
Goldman to Offer Facebook Shares Only to Non-U.S. Clients (wsj.com)
37 points by ssclafani on Jan 17, 2011 | hide | past | favorite | 39 comments



Two companies with questionable moral and business practices that certainly deserve each other.


Well stated. Another reason not to use Facebook or Goldman Sachs.


I agree with you, but that comment just isn't constructive.


the comment explains symmetry breaking in the virtual space of companies under the action of ethical force field. How that is not constructive?


Huh? What's the point?

I hate to break it to you, but the world of human affairs is not governed by such simple dynamics.


Amusing. I'm sure barring U.S. investors from participating in Facebook's curious financial maneuvering will reduce the "intense media attention".

This feels like part of a grander marketing scheme designed to whip future investors into a froth...


Or perhaps a methodology to enable Goldman to fly a bunch of business through a loophole in the law.


it will possibly reduce the ability of bringing a suit in US court. Where a Saudi bank will bring a suit regarding the deal that happened through some Bahamas intermediary?


Welcome to the next financial outlet after sub-prime mortgages.

There seems to be an entrepreneurial spirit to this, however: find a regulated niche, weasel around it to provide clients with a high-growth and unsafe market. If the SEC doesn’t clamp down on this, I can see this sort of dark trading becoming popular enough to destabilize the economy once it fails.


Reminds me of a chapter from Michael Lewis's "The Big Short: Inside the Doomsday Machine" (a book about the recent financial crisis) in which one trader asks "who's buying these?" [toxic housing assets], and the other replies "Dusseldorf. Stupid Germans."

http://www.economist.com/node/15955490


> find a regulated niche, weasel around it to provide clients ...

Regulators can't regulate the demand away. They can only push it underground, beyond the light of day. Whether this is a desirable social outcome or not I leave as an exercise to the reader.

It's not clear to me why regulators want to prevent mutually agreeable transactions from taking place. Surely when GS is on the other side of the table, you are aware that you are swimming in the deep end with the big boys...


The idea isn't that the two parties involved will harm each other, it's the effect on the rest of us.

And "it's going to happen, so we should just let it happen" isn't a great justification for anything. "Regulators can't regulate robbery away." "Regulators can't regulate assault away." This doesn't mean that nothing should be done. I agree that regulation may not be the best answer, but throwing it all out is likely to be as bad or worse.


> "Regulators can't regulate assault away."

I have no beef with enforcing laws to prevent a priori harmful actions. By this I mean: actions in which we don't need to wait 10 years to decide who the victim is.

A more apt analogy would be the War On Drugs. Good luck attempting to regulate the demand away, when you have mutually agreeable transactions in which both sides believe they are benefiting.


I'm also very against the War on Drugs, but for different reasons: while it's true that you can't regulate away the demand, it's not only unreasonable to regulate what things I put in my body, but also, by making them illegal, you cause all kinds of other associated crime and violence. The world would be a better place overall if drugs were legal.

The situation around an unregulated financial industry is much less clear. Without any regulation, I don't imagine that the world would be a better place. At least, it's not as clear to me as a world with legal drugs.


> it's not only unreasonable to regulate what things I put in my body, but also, by making them illegal, you cause all kinds of other associated crime and violence. The world would be a better place overall if drugs were legal.

I believe the same things apply to mutually agreeable transactions. One of the main reasons subprime blew up is that the ratings agencies gave AAA ratings to the toxic CDS instruments. AIG and several other large institutional investors such as pension funds have regulatory requirements to only buy AAA-rated debt in various scenarios.

This promotes an environment of ignoring due diligence and relying on the ratings agencies operating on 3rd-rate employees and perverse incentives.

My broader point is that the public is clamoring for Big Daddy to regulate away the risk. We all want to make 15% per year, risk free. The reality is that risks are correlated with rewards, and there are a wide range of investment products to match individual needs.

What is the right amount of regulation? Beyond addressing information asymmetry or recognized market failures, I can't imagine much. Have the failures of the past 20 years been from too much regulation or not enough? How do you tell? How much is too much?


> It's not clear to me why regulators want to prevent mutually agreeable transactions from taking place.

In general, because the regulatory functions are aware of information asymmetries that could lead to large numbers of people transferring a significant amount of wealth to smaller number of other people.

Wealth concentration is expensive for society, because those who lose out do NOT give up their right to vote replacement money into their pockets. The more of them there are, the more likely they are to get society to cover some of their losses.


> In general, because the regulatory functions are aware of information asymmetries that could lead to large numbers of people transferring a significant amount of wealth to smaller number of other people.

I doubt this is the actual principle upheld. You have just described the role of insurance, as provided over the last 300 years or so, as something regulators want to prevent. You have asymmetrical information and a massive pool of people transferring premiums to a smaller group (the insurance companies themselves). Then, when there is a payout, you have the smaller group transferring massive amounts to yet smaller individuals (the ones who experienced catastrophic loss).


Regulators regulate to protect the greedy from themselves.


Umm, because the government will have to bail these people out if they fail.


You fail to appreciate the difference in scale between a two billion dollar investment and the trillion dollar subprime mortgage market. You can't just wave your hands and assume that deals like this are going to multiply a thousand times over.


What a weird world we live in which a uniquely American venture can not offer its stock to American investors because of investment rules, regulations and the unspecified 'media attention' (does that mean they're scared that if the price drops after the offering they'll be sued? Are they expecting it to drop?)


To be fair, they can offer their stock to anyone they want if they follow the rules like thousands of other companies do. Trying to dodge those rules is what got them the media attention. You can argue over the usefulness of those rules, but Facebook (with the help of GS) is pretty clearly trying to subvert them.

I think it's a case of trying to be a tad too clever. It reminds me of Google's more successful attempts at an unconventional IPO.


How is it a subversion to dodge US trading regulations by not trading in the US?


The sole purpose of the entity they created was to allow more investors to participate than the SEC individually allows. When doing so attracts world-wide media attention, there is little difference between that and publicly selling the stock of a private company, which is not allowed.

They were doing this in the US before everyone said "WTF? Isn't that illegal?" It was a fine line GS was was walking (surely they expected and were counting on some hype), and it appears that it worked a little too well.

Edit: clarified.


The subversion is not this latest bit of news, in which GS is submitting to the will of U.S. regulators by not offering their service domestically.

The subversion was their prior stance of keeping the fund under the artificial limit of 100 investors, by presenting it as a mutual fund of sorts, where many investors invest in the fund, and the fund invests in Facebook. Despite likely getting the exact details wrong, I believe that's the gist of it.


They tried to "dodge the rules" by using a mechanism explicitly written into the rules. As the regulatory state expands, the notion that we are a nation governed by laws and not men dies.


Correct. I've clarified what I meant in a comment below. The dodging is more subtle than than the number of shareholders. The hype appears to be what did them in.


anyone interested in buying this knows how to set up shells outside the US. This is probably just to help them get around rules that the US govt is trying to impose on them. I'm sure GS will happily assist their clients in setting up the shells as well.


Goldman is expert at following the letter of the law while violating the spirit of the law. They have enough expertise and talent at their disposal to know exactly where the line is and take advantage of it's placement.


I'm no financial regulation expert, but does this mean that by offering FB shares only to non-US clients, GS can prevent Facebook from having to disclose its financial results to the public? Does the disclose-your-finance-if-over-499-investors rule only apply to US investors? (http://finance.fortune.cnn.com/2011/01/03/what-does-goldmans...)


Haven't we seen this recently from Goldman Sachs?

This tells me that Goldman Sachs is going to hedge the stupid foreigners with their US clients... Again.

Like they hedged the stupid poor homeowners.

I would stay far away from these creeps if I was a foreign investor.


Sounds like pretty arbitrary regulation. Does anybody know in particular what laws Goldman would be violating by offering to US investors?


Is GS a US-based company, or not? How do they get to pretend they are outside the SEC's jurisdiction?


> How do they get to pretend they are outside the SEC's jurisdiction?

The SEC only has jurisdiction over US securities activities. GS is capable of doing securities activities outside the US.

This sort of thing is not unique to securities.

Consider pharmacuticals. Certain drugs may only be dispensed in Japan under prescription while others are complete banned. Some of the former are over-the-counter in the US while some of the latter are prescription-only in the US. A Japanese pharmacutical company is bound by Japanese law wrt production in/export from Japan but is not bound by Japanese law wrt distributing drugs in the US, even if they were made in Japan.


The SEC has continued to expand on what it considers its jurisdiction to be.

For example, see this article (section on "extra territorial jurisdiction"): http://www.mondaq.com/unitedstates/article.asp?articleid=107...


The entire facebook share thing is starting to look like a big ponzi scheme.


Is face-ville a ponzi scheme ? well i doubt they have 500 M verified accounts. Just my GF created about 10 acounts for exchanging farmville items between each other.

And other persons are creating accounts for their pets !

Ponzi it the Man of the Century, he enabled the service "industry".


[deleted]


The idea that lay-investors stand to profit by trading with GS is laughable...


This is only a tiny part of the company and we're far from knowing if any profit will be realized.




Consider applying for YC's Spring batch! Applications are open till Feb 11.

Guidelines | FAQ | Lists | API | Security | Legal | Apply to YC | Contact

Search: