Meet the ‘New Normal,’ Same as the Old Normal! Goldman Invents the Non Public-IPO

In “Meet the ‘New Normal,’ Same as the Old Normal” (April 9, 2010), we described a recent spate of earnings announcements from retailers across America as being surprisingly reminiscent of every other economic recovery we ever recalled.



‘Surprising,’ that is, to those too busy proclaiming the death of the “Old Normal” and the rise of the so-called “New Normal”—a new American era of dashed expectations, vanished hopes, reduced living standards, “Two and a Half Men” reruns in perpetuity, and just generally the decline and fall everything we once held dear—to notice that things were, in fact, improving.

And although it took a few more months than we expected to see the “Old Normal” begin returning in earnest, yesterday’s ADP payroll data made clear the “New Normal” is, in fact, looking pretty much like the ‘Old Normal.’

Today we are happy to report one more sign that the “New Normal” looks a lot like the “Old Normal”: Goldman Sachs is back, center stage, in all its canny rule-avoiding supremeness.

How else to describe the Goldman-managed, Goldman-led, Goldman-directed Non-Public Initial Public Offering (what we will abbreviate as ‘NP-IPO’) of Facebook—in what surely must be the hottest Initial Public Offering since the very public Initial Public Offering of Netscape 15 years ago?

The rules being avoided here are those set by the Securities Exchange Act of 1934, since amended by SEC rules, that a company with more than $10 million in assets and 500 shareholders ought to register its shares with the SEC, and file quarterly and annual financials.

Goldman, for the record—according to the Wall Street Journal—is selling what is believed to be $1.5 billion worth of Facebook shares to a bunch of Goldman clients for a minimum investment of $2 million a person.

And the deal is, in the parlance of IPOs since time immemorial, oversubscribed.

So how is Goldman getting around the $10 million asset/500 shareholder hurdle, since, after all, Facebook certainly has more than $10 million in assets and, even before the Goldman Non-Public IPO, more than 500 shareholders?

By calling it a private investment and pitching it only to wealthy individuals, that’s how.



Here’s how the Journal described Goldman’s sales pitch for the hottest shares on the planet:

Some investors approached by Goldman initially got a 400-word email, offering them a chance to “discuss a highly confidential and time sensitive investment opportunity in a private company that is considering a transaction to raise additional capital.”

We’ve heard from our own sources—non-Goldman people—that this is how the Goldman pitch did in fact go down, and that while Facebook wasn’t actually identified in the initial contact, everybody who got contacted seemed to know that Goldman was handling a Non-Public IPO of Facebook anyway, or would when the news broke the next day, so the cloak-and-dagger stuff was for naught.

The Goldman email itself is a doozy—at least, as it has been reported by the Wall Street Journal—and reads as follows:

“When you have a chance I wanted to find a time to discuss a highly confidential and time sensitive investment opportunity in a private company that is considering a transaction to raise additional capital.

—The Wall Street Journal, January 6, 2011





And so it is that Goldman Sachs, which for one, brief, shining moment was dressed-down in the chambers of Congress for selling the deliberately-packaged, shoddy merchandise of one client to yet another client that was selling the same merchandise short, is already back in action, at the top of its game.

Having wormed its way inside the most popular web site in the world and pried away shares in the most highly valued (relative to sales and earnings) large company in the Free World, it is now offering those shares along with “material nonpublic information” on a take-it-or-leave-it basis to its own most exclusive clients.

No slackers, no Congresspersons, no non-Goldman clients need apply.

“Well what,” you may ask, “is wrong with that?”



Technically, of course, very likely nothing.



But during the heady dot-com Bubble days of the late 1990s, when Silicon Valley companies were routinely distributing millions of shares worth of stock options to employees without being required to expense, for reporting purposes, the expected value of those options—thus inflating the valuation of those companies and the likely cost of those stock options while simultaneously damaging the value accruing to those companies’ public shareholders, Warren Buffett asked, rhetorically and correctly, “If the value of the options is not an expense, what is it?”

And if Goldman Sachs’ offering—of what apparently amounts to millions of shares of Facebook worth more than a billion dollars, to hundreds, if not thousands, of outsiders not affiliated with that company—is not an “Initial Public Offering,” what is it?

Why, it’s a Non-Public Initial Public Offering!

Goldman end-running the Securities Exchange Act of 1934?



Meet the New Normal, same as the Old Normal!





Jeff Matthews

I Am Not Making This Up

© 2011 NotMakingThisUp, LLC

The content contained in this blog represents only the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever. Also, this blog is not a solicitation of business by Mr. Matthews: all inquiries will be ignored. The content herein is intended solely for the entertainment of the reader, and the author.