Facebook stock goes public: except if you are poor and not part of the elite first

Has social media gone elitist? While Facebook is a free place for people from all over the world to interact, is it now losing that sense of being a place where everyone is equal? The stock is now being sold to only the rich. That might change how people view this company. Will the 500 million users of Facebook be upset that rich people are being given an upfront edge in making a profit off the company?

Facebook shares are being sold through Goldman Sachs, Felix Investments and SecondMarkets to their wealthy clients, notes Newsweek. This company also just aligned with Digital Sky Technologies from Russia to give Facebook $500 million dollars to use to grow the site.

The New York Times reports that investors who want to get this stock through Goldman Sachs will have to provide $2 million dollars and would be prohibited from selling their shares until 2013 or until the company goes public. Anyone who has that amount of money to invest in just one company is certainly in the upper tier of wealth country wide. It would be fun to see a list of the early investors; however, that information will probably never be made public.

SEC Investigation

The SEC has a lot of curiosity about these deals. They have started an investigation. The law deems that only 500 investors can own this stock before the IPO. However, Goldman Sachs has somehow managed to get the company deemed as one investor no matter how many actual investors they let buy the stock, notes the New York Times. That seems to strongly bend the rules.

The stock traded at the offer price on the open market. So anyone who wanted could have gotten it for $38, the same price as the "uber-rich". So no one has whining rights on this one.

Overall, though, I agree. I've been part of an IPO or two. An IPO is generally closed to the public. The people who make money are the people that get an allocation. Buy and sell on the first day. It's like being handed a bag of money. You don't even have to put up any money, same day sale.

The people that made the big money in this case were the ones that cashed out. They comprised of rich and middle class (well they were middle class yesterday!) alike.

Well, today at least, those would only be the angels and VCs that invested in the company or bought stock on the secondary market over the last two years. And plenty of those divested themselves of FaceBook today if you look at their fillings. Some said they were only going to sell 7% of their holdings but then 2 days ago bumped that up to 50%.

The FB employees are locked out for 6 months. They can't sell. It's standard practice with an IPO. The insiders are more screwed. They can only trade the stock 4 weeks out of the year after the lockout. Been there, done that.

20% of the allocation went to retail investors. That's a huge amount. Good news? No. Generally retail investors are the investors of last resort. You only go there as an underwriter if you can't get institutions to buy. So in essence, FB was undersubscribed.

Feb. 4 (Bloomberg) -- Mark Zuckerberg may sell about $1.67 billion of Facebook Inc. stock in the company’s initial public offering to pay off taxes he will owe when he exercises options to buy 120 million shares.

Well, today at least, those would only be the angels and VCs that invested in the company or bought stock on the secondary market over the last two years. And plenty of those divested themselves of FaceBook today if you look at their fillings. Some said they were only going to sell 7% of their holdings but then 2 days ago bumped that up to 50%.

I was not aware of the 6 month ban on selling for employees. How was Zuck able to sell his shares then? Does he get preferential treatment for being the CEO and majority owner?

Anyhow, I hate Facebook and Social Media in general.

If you look at the SEC filing, it does say "shares held by the selling stockholders other than Mr. Zuckerberg" under the lock up section. So maybe he did exempt himself. That would be well.... the CEO is the most inside of the insiders. The whole point of the lock up is to demonstrate that the company actually has faith in itself and is just not out for a quick buck during the IPO.

http://sec.gov/Archives/edgar/dat...954ds1.htm


I never thought this day would come. Finally something we agree about.

That's a good question. None of this is required by law. It's all just the way things are done. It's all part of the agreement that takes a company public. FB did reduce the lock up from 6 months to 3 months for some of it's employees yesterday.

http://blogs.marketwatch.com/thet...e-holders/

If you look at the SEC filing, it does say "shares held by the selling stockholders other than Mr. Zuckerberg" under the lock up section. So maybe he did exempt himself. That would be well.... the CEO is the most inside of the insiders. The whole point of the lock up is to demonstrate that the company actually has faith in itself and is just not out for a quick buck during the IPO.

http://sec.gov/Archives/edgar/dat...954ds1.htm



I never thought this day would come. Finally something we agree upon.

Do poor people generally play the stock market?
Nah probably not....

I think that the shares talked about in the article are private (pre-IPO) shares that he held which he would be selling into the IPO, not new public shares from the conversion of whatever his ownership is.

Doesn't normally matter. A lock up is a lock up. Most employees in a private company own their shares outright as well. You vest, get the option and you buy. The shares are yours. If you have a cool company, then they let you buy all your shares before you even vest since that's a major tax advantage. You owe AMT the second you buy the shares whether you sell them or not. AMT is based on the current valuation of the shares. Thus if you are in a startup and the shares are worth 10 cents, then that's the best time to buy them and thus pay AMT on 10 cents versus much more later. I'm surprised Zuckerberg didn't do that since the article says he's selling the shares to pay off his AMT. Why didn't he excercise the option to buy his shares when he was still in his dorm room?

What comes after Banana Republic? Because America is it - after last week Facebook co-founder, and native Brazilian, Eduardo Saverin announced he would denounce his US citizenship, America has decided to make it virtually illegal to denounce one's citizenship in what can only be classified as the dumbest proposed law in recent history: meet the Ex-PATRIOT Act (Expatriation Prevention by Abolishing Tax-Related Incentives for Offshore Tenancy) proposed by Chick Schumer and Bob Casey.
From ABC:

The senators will call Saverin's move an "outrage" and will outline their plan to re-impose taxes on expatriates like Saverin even after they flee the United States and take up residence in a foreign country. Their proposal would also impose a mandatory 30 percent tax on the capital gains of anybody who renounces their U.S. citizenship.

The plan would bar individuals like Saverin from ever reentering the United States again.

So going forward everyone who no longer wants a US passport will have to check a box:
Are you no longer a US citizen for tax purposes: Yes / No.

I am old enough to recall the Iron Curtain, and wise enough to know it was to keep people in rather than keeping us out.

So when they finally get around to building the fence along our southern border, the barbed wire on the top will face IN?

I got news for you, CA already does something like this law. If you have lived in CA in the past 10 years or did business in CA of any kind, you might just get a tax bill from them. There was a story a few weeks ago about a guy who moved away from CA years ago and got a tax bill. Not only that, but CA got his bank (Wells Fargo I believe) to remove the tax bill amount from his checking account proactively.

'Unless I’ve totally misunderstood every history book that has passed through my hands, dumping citizenship for tax reasons is exactly how America started.'