New York Business Lawyers

New York Businesses Raising Capital and Others Must Know Difference Between Regulation S and D: Case in Point Facebook

by / Thursday, 10 February 2011 / Published in Startup & Corporate

Facebook’s recent securities offering has everyone and their mother abuzz with glee about getting in early on the newest rocket-ship to easy living.  The only glitch? This round is not only private, but it likely wasn’t even open to U.S. residents.  When we say “private” in the securities world, it generally is in connection with the offering of securities to a select few group of people under the auspices of federal regulation D.  That regulation underpins everything from early stage financing for a vast majority of startup operations, to indie film projects.  The key in “private” means there is to public solicitation or general advertising (think an ad on Facebook).  And the regulation (Rule 502 of the Securities Act) itself states: “neither the issuer nor any person acting on its behalf shall offer or sell the securities by any form of general solicitation or general advertising . . . .”

With Facebook however, the “private” aspect was very likely impossible to satisfy. Hence, the safe harbor of Regulation D probably wasn’t available and Goldman Sachs pursued another strategy to sell early stage Facebook equity: Regulation S. Though bearing some similarities with D, there is one margin difference common element in Regulation D offerings, the offerees are often American.

Ironically, while I blog this from Berlin, in attendance for Berlinale 2011, perhaps I’m elbow to elbow with high net worth Germans who actually bought in to own a byte of America’s social sweetheart.

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