Facebook growth under US scrutiny

Financial regulators monitor private trading of social networking website after $500m deal with US and Russian firms.

    Mark Zuckerberg has denied any plans publicly to trade his company's shares [GALLO/GETTY]

    Popular social networking website Facebook has raised $500m from American and Russian investment firms, a move that has drawn the attention of US financial regulators.

    US media reports citing sources close to the deal said on Sunday that Goldman Sachs pumped in $450m and Digital Sky Technologies invested $50m.

    The New York Times in its online edition on Sunday said Goldman has the right to sell part of its stake, up to $75m, to the Russian firm in a deal that values Facebook at $50bn.

    The report said representatives for the three parties declined to comment.

    The US Securities and Exchange Commission (SEC) is reportedly looking into the growth in privately-held shares of popular social networking sites such as Twitter, LinkedIn, and Facebook, which is the world's largest - with 500 million-plus users worldwide.

    Regulators are concerned that, with this private market booming, companies might be able to circumvent public disclosure requirements.

    US law requires the public disclosure of certain financial information once a company hits 500 shareholders, even if it has not filed for an initial public offering.

    This is believed to the main reason the SEC is looking into the trading of these popular private startups' shares.

    The Times said Goldman is planning to create a "special purpose vehicle" that may be able to circumvent the 500-shareholder rule because it would be managed by Goldman and considered just one investor, even though it could conceivably be pooling investments from thousands of clients.

    According to Tom Royal, deputy editor of Computer Active magazine, the deal "shows that Facebook is a really, really valuable company doing very well, especially when you consider how long it's been around and how it's grown".

    Speaking to Al Jazeera, Royal said: "You do have to put it in perspective against the really big online giants like Google ... but I think it's reasonable to assume that Goldman has made quite a good investment."

    Private trading

    Shares of privately held companies can be traded on private stock exchanges such as SecondMarket, based in New York, and SharesPost, based in San Bruno, California.

    The shares are generally sold by former employees or early investors in these companies.

    Only institutional investors or high net-worth individuals, with assets of more than $1m, can buy the shares. For those who can sell them, the market is on fire.

    On SharesPost, a completed contract between a buyer and a seller valued shares of California-based Facebook at $25 each. This implies a valuation of nearly $57bn.

    Facebook recently tightened its privacy settings after criticism that personal information was being disseminated without users' knowledge or permission.

    Mark Zuckerberg, the founder and CEO of Facebook, was named Time magazine's "Person of the Year" and was the subject of a high-profile movie about Facebook's creation entitled The Social Network.

    Further scrutiny by the SEC could help push Facebook towards a public listing but Zuckerberg has denied plans for a flotation.

    Zuckerberg, who owns about a quarter of Facebook's shares, is one of the world's youngest billionaires.

    The New York Times said the deal may double Zuckerberg's personal fortune, which Forbes estimated at $6.9bn when Facebook was valued at $23bn.

    SOURCE: Al Jazeera and agencies


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