Goldman Sachs Rejects U.S. Investors on Facebook Private Offering

Late last year The Wall Street Journal reported that the Securities and Exchange Commission (SEC) had preliminarily began to investigate the trading of privately held tech companies, including Facebook and Twitter. The investigation was focused on funds that obtain shares of privately held companies from a seller, like an employee of the company, and then find investors willing to buy those shares plus transaction fees. It is also believed that the investigation is examining how these funds and the potential expansion of ownership in privately held companies will affect those companies and their need to disclose certain financial information. Therefore, if a company has more than 500 shareholders and over $10 million in assets, under U.S. securities laws, they must make the appropriate disclosures.

Goldman Sachs had planned to sell up to $1.5 billion in Facebook, Inc. to clients willing to make a minimum investment of $2 million, with the provisions that such shares be held until 2013. Although the offering was to be limited, details of the deal were leaked to the media and the deal quickly became publicized, leaving Goldman with $7 billion in orders for $1.5 billon of Facebook shares. The heightened public awareness of the offering caused Goldman Sachs to conclude that “the level of media attention might not be consistent with the proper completion of a U.S. private placement under U.S. law." Therefore on January 17, 2011, Goldman Sachs announced that it would not be including U.S. investors in its private offering of Facebook. It should be noted that Goldman Sachs’ decision was their own, and was not “required or requested by any other party,” such as the SEC.

It appears that Regulation D of the Securities Act of 1933 and its corresponding rules banning a general solicitation, including any advertisements, articles in newspapers, magazines, and similar media (ex the internet), is at issue in this situation. It also appears that the rules governing the offer outside the U.S. are less strict concerning this type of offering, and is why non-U.S. investors are still able to participate in the offering.

The question raised is whether such regulations benefits U.S. investors. Critics argue that such restrictions are burdensome and place U.S. investors at a disadvantage when compared to their foreign counterparts. Supporters of the regulations noted that “[t]he notion of a private offering of a company that has been widely touted is inconsistent with our federal securities laws.” Further, it is argued that investors should think twice before taking part in such a private offering, as they do so without access to the financial disclosures required for publicly traded corporations, and therefore may not be able to make a fully informed decision regarding the potential investment. Others praised Goldman Sachs’ decision, noting that being cautious regarding rules and regulations was a step in the right direction for the firm, especially after last year’s suit by the SEC which ended in a $500 million settlement.

There are certainly differing views as to what role the government should play in the regulation of the markets. U.S. investors deprived of the opportunity to purchase Facebook shares are likely to be highly sophisticated and wealthy (at least able to afford the minimum $2 million investment) and as such may not need the same protections as consumers on the public markets. However, in being cautious and proactively ensuring compliance with U.S. securities laws, as opposed to being sued by the SEC for non-compliance, Goldman Sachs did the right thing. Actively and publically letting the American people know that they are following the rules may improve the public’s perception of Goldman Sachs and the banking industry as a whole. Although U.S. investors may feel left out, there may be other ways for them to presently acquire Facebook shares, or they may wait until Facebook goes public, which may happen in April of 2012.

Gasping for Air: How the House is Trying to Choke the EPA Out of the Climate Change Debate.

In an effort to improve the U.S. government’s knowledge of the causes and effects of climate change, the Department of Energy launched the Scalable, Efficient, and Accurate Community Ice Sheet Model (SEACISM). SEACISM is an endeavor to perfect algorithms used at the Oak Ridge National Labora+tory to measure depleting glacial ice in countries such as Greenland. The DOE hopes that SEACISM will create enough data by 2013 to adequately inform the Intergovernmental Panel on Climate Change.

Despite this lack of knowledge, House Republicans proposed a bill on February 2, 2011 which would prohibit the Administrator of the Environmental Protection Agency (EPA) from promulgating rules pertaining to greenhouse gas emissions in efforts to address climate change. The Energy Tax Prevention Act, proposed by Rep. Fred Upton of Michigan, is in response to a variety of administrative rulemakings amending the permitting process for Prevention of Significant Deterioration (PSD). PSD is a permitting process instituted by the 1977 Amendments of the Clean Air Act, to prevent a state that is in compliance with the EPA’s standards on “criteria pollutants” from falling out of the acceptable pollution levels. As part of this permitting process, new sources of regulated materials must incorporate the “Best Available Control Technology” to prevent gas emissions. This can require the installation of costlier pollution reduction technologies in proposed plants, factories, etc. The PSD regulations were amended to include greenhouse gases as a pollutant requiring the BACT after the Supreme Court’s ruling in Massachusetts v. EPA, which permitted the Administrator of the EPA to regulate greenhouse gases.

The Energy Tax Prevention Act would repeal the various rulemakings the EPA has made regarding “concerns over climate change”, and would prevent any future attempts at regulation by the EPA. The Clean Air Act was intended to be technology forcing, placing burdens on polluters so as to force industry standards to adopt newer and cleaner methods of doing business. By removing greenhouse gases out of the purview of PSD, the technology forcing ethos behind the CAA and its subsequent amendments is eroded. While PSD is not the most stringent standard imposed by the CAA, and allows for consideration on a case by case basis of what is technology and economically feasible, the BACT requirement is meant to force industries to consider and incorporate continuously progressing pollution reduction technology.

The debate goes to the heart of contemporary political issues: on one side are pro-business laissez faire supporters wishing to keep business costs down in the hopes of improving the American economy, and on the other side are environmentalists and climate change experts who see the hands off approaches to business as threats to the public health and welfare. The competition of interests creates a foreboding air of stalemate for the representative branches of the U.S. Government. In a climate where the basic existence of climate change and human contribution are so diametrically opposed, it is wishful thinking to believe in any preventative action being taken to better air quality.

Although the bill is unlikely to pass the senate due to the absence of a sufficient majority, the Obama Administration already vowed to veto the bill in the event of the bill’s passage. With climatologists claiming that the point of no return for remedial action is fast approaching, the actions by climate control opponents attempting to remove technology requirements for greenhouse gases further postpones any significant curtailment of the U.S.’s contribution to this potential ecological crisis. Hopefully, the SEACISM project at Oak Ridge can provide some much needed clarity to the issue so as to allow for meaningful discussion based not on opinion but scientific facts; however without scientific certainty this legislative gridlock may be insurmountable.

Will The Information Age Be Curbed by Government Sponsored Internet Filtering and Censorship?

Google recently accused the Chinese government of blocking access to GMail in China, bringing to the fore issues of internet filtering and censorship. These issues are hardly new. For years, Saudi Arabia has been actively blocking its citizens from accessing websites which criticize the Saudi government or discuss conversion from Islam. North Korea apparently works to keep its citizens from accessing the internet at all. China has a history of blocking websites which the government finds objectionable.

With the revolution in Egypt, however, and the ensuing unrest around the Middle East, it is likely that more governments, particularly those which are unpopular with their people, will move to block or restrict their citizens’ access to electronic communications. But it is not only the usual suspect states which are censoring their citizens. According to Reporters Without Borders, France has passed a law granting the government the unchecked power to block websites and Australia is debating one. The French law is aimed at eliminating child pornography, while the Australian proposal is currently broader, aimed at “inappropriate” content.

The temptation to regulate the discourse on the internet is apparently a strong one. Totalitarian regimes clinging to power over their people are not the only governments seeking to exert some measure of control over what their citizens can and cannot see or say online. The goal may be laudable, but as the drafters of the First Amendment to the United States Constitution understood, censorship can snowball. The law that prevents “inappropriate” content can be as easily used to stop anti-government speech as to stop child pornography. Any legislation on the issue must be very carefully drafted to ensure that it is not used to quash dissent and stifle freedom.

Will The Real "App Store" Please Stand Up?

On March 18, 2011 Apple commenced a lawsuit against Amazon for Amazon’s use of the word “appstore” (Apple Inc. v. Amazon.com Inc., 11-1327, U.S. District Court, Northern District of California). Bloomberg news broke the story on March 22, 2011. Apple had filed the term “App Store” as a service mark in 2008 in conjunction with its release of the iPhone 3G. A few days before the release of the Amazon Appstore for Android, Apple filed a claim that Amazon’s use of the name “Amazon Appstore” would mislead customers. The question before the court will be whether an “app store” is a generic term commonly used in trade and cannot be trademarked.

Trademarks include symbols that are used in commerce to indicate the source of goods and services,

Back on January 10, 2011 Microsoft filed a motion with the USPTO to refuse registration of the term “app store”. Microsoft argued that the term “app” by itself is a generic term for a product that is in common usage and used in several dictionaries as a short hand way of saying “application”. Further, Microsoft argued that a generic name for a product followed by the word “store” is itself a generic way of describing a store that sells that product. In several previous cases, the USPTO had held that these types of marks were generic, such as “The Computer Store” or the “Shoe Warehouse.” Microsoft notes that CEO of Apple Steve Jobs himself has used the term “app store” generically, such as in Apple’s October 2010 earnings call where Jobs said:

In addition to Google's own app marketplace, Amazon, Verizon, and Vodafone have all announced that they are creating their own app stores for Android -- so there will be at least four app stores on Android, which customers must search among to find the app they want.

Of course, many are puzzled by the fact that Microsoft is arguing that Apple should not be able to trademark “app store”, especially in light of the fact that Microsoft itself has stringently defended its trademark of the term “Windows”.

One thing is certain – regardless of what you call them, a new breed of stores has risen in the marketplace and will continue to flourish as long as people want to buy “apps”.

On March 18, 2011 Apple commenced a lawsuit against Amazon for Amazon’s use of the word “appstore” (Apple Inc. v. Amazon.com Inc., 11-1327, U.S. District Court, Northern District of California). Bloomberg news broke the story on March 22, 2011. Apple had filed the term “App Store” as a service mark in 2008 in conjunction with its release of the iPhone 3G. A few days before the release of the Amazon Appstore for Android, Apple filed a claim that Amazon’s use of the name “Amazon Appstore” would mislead customers. The question before the court will be whether an “app store” is a generic term commonly used in trade and cannot be trademarked.

Trademarks include symbols that are used in commerce to indicate the source of goods and services,

Back on January 10, 2011 Microsoft filed a motion with the USPTO to refuse registration of the term “app store”. Microsoft argued that the term “app” by itself is a generic term for a product that is in common usage and used in several dictionaries as a short hand way of saying “application”. Further, Microsoft argued that a generic name for a product followed by the word “store” is itself a generic way of describing a store that sells that product. In several previous cases, the USPTO had held that these types of marks were generic, such as “The Computer Store” or the “Shoe Warehouse.” Microsoft notes that CEO of Apple Steve Jobs himself has used the term “app store” generically, such as in Apple’s October 2010 earnings call where Jobs said:

In addition to Google's own app marketplace, Amazon, Verizon, and Vodafone have all announced that they are creating their own app stores for Android -- so there will be at least four app stores on Android, which customers must search among to find the app they want.

Of course, many are puzzled by the fact that Microsoft is arguing that Apple should not be able to trademark “app store”, especially in light of the fact that Microsoft itself has stringently defended its trademark of the term “Windows”.

One thing is certain – regardless of what you call them, a new breed of stores has risen in the marketplace and will continue to flourish as long as people want to buy “apps”.