Goldman Sachs won't sell Facebook shares in U.S.

Goldman Sachs Group Inc. will offer a private investment in Facebook Inc. only to customers outside of the United States due to concerns that "intense media attention" could trigger violations of U.S. financial disclosure laws.

The New York bank reportedly has agreed to buy a $450 million stake in the Palo Alto social networking giant and then sell $1.5 billion worth of private shares through a new Facebook investment fund offered to select clients.

The deal has been the subject of numerous news stories since it was first reported Jan. 2 by the New York Times. Because of the unusual amount of publicity, Goldman Sachs is trying to avoid tripping over regulations governing the marketing of private securities, which are stricter in the United States than in other countries.

"In light of this intense media coverage, Goldman Sachs has decided to proceed only with the offer to investors outside the U.S.," the firm said in a statement released Monday. "Goldman Sachs concluded that the level of media attention might not be consistent with the proper completion of a U.S. private placement under U.S. law."

Private investments are offered in private and generally not announced until they are completed. In fact, the statement released Monday was the first official acknowledgment by Goldman Sachs that it planned "to conduct a private placement in the U.S. and offshore to investors interested in Facebook."

But Facebook's rapid rise as one of the world's hottest technology firms is now thrusting anything the company does into the public spotlight. The company has more than 500 million active users around the world and is projected to be closing in on 600 million. Analysts also estimate the company generated about $2 billion in revenues for 2010.

There has been continual speculation that Facebook will file for an initial public offering, but for now, it remains a privately held concern not subject to the same U.S. Securities and Exchange Commission regulations that govern firms that trade on public stock markets.

The Goldman Sachs offering already was drawing scrutiny from SEC officials, who reportedly have asked for more information about the deal.

"The decision not to proceed in the U.S. was based on the sole judgment of Goldman Sachs and was not required or requested by any other party," the firm's statement said. "We regret the consequences of this decision, but Goldman Sachs believes this is the most prudent path to take."

A Goldman Sachs spokesman declined to elaborate. Facebook spokesman Jonathan Thaw would only restate his company's position that "Goldman is in the best position to answer any questions beyond their statement."

Victor Shum, a partner in the San Francisco office of Jeffer Mangels Butler & Mitchell LLP, said he doesn't believe Goldman Sachs' decision was motivated by concern over SEC regulations. Because there is reportedly an overflow of interest in the Facebook fund, Shum said, the bank can afford to rely on just overseas investors.

"Perhaps there is a belief that overseas investors are less sophisticated and less litigious if this investment goes south," said Shum, who counsels emerging growth high-tech firms.

Randy Hawks, managing director of Claremont Creek Ventures of Oakland, told Bloomberg News that "Goldman's U.S. clients will be disappointed."

In the same report, Peter Hahn, a lecturer on corporate finance at Cass Business School in London, said the proposed placement might raise questions about whether U.S. regulators should restrict the marketing of securities offerings for sophisticated investors.

"Does this suggest that U.S. laws are prohibiting a certain group of investors from funding U.S. companies?" he said. "You might see some significant U.S. investors suggest that this is a negative for the U.S. economy."

E-mail Benny Evangelista at bevangelista@sfchronicle.com.

This article appeared on page D - 1 of the San Francisco Chronicle