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Goldman/Facebook – New Media Invokes Old Laws

Published January 18, 2011

Media reports on January 18 indicate that Goldman Sachs has halted its private placement of Facebook stock due to ‘regulatory concerns’ with respect to the enormous publicity the transaction has received in both traditional press and new media.

It is a cornerstone of the private placement exemption that no ‘publicity’ is utilized in the transaction in order to demonstrate that no general solicitation has occurred, the foundation of a private placement under Regulation D.

Given that there are some pretty smart people who work at (and represent) Goldman and Facebook…this is yet another indicator that the securities laws established in 1933 (and even Regulation D, promulgated in 1982) are way behind the times when it comes to technology, information dissemination and the internet.  Nevertheless, it is an important lesson to a company seeking to conduct a private placement that the regulators, particularly the SEC, will seek to enforce the laws, rules and regulations that are on the books regardless of the disconnect between the intent of such now aged investor protections and the manner in which information is now instantaneously spread throughout the world.

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