Facebook has changed the social networking world several times in the last decade. The company has stayed private under the founder Mark Zuckerberg. Mr. Zuckerberg has probably done this for several reasons the rest of will never know. One positive side of the of the self-created exclusivity of Facebook is that investors are dieing to investment money in Facebook. The latest deal with Goldman Sacs to invest $1.5 Billion dollars in Facebook is a prime example of the lure Facebook has on investors.
It is this magical temptation that promoted the SEC to start asking questions. For the first time in recent memory the SEC has decided to investigate before a law is broken. I thought the world had flipped upside down, a giant government bureaucracy doing its job before a clearly labeled law is broken. What happened next?
The Wall Street Journal publishes an opinion article by Holman W. Jenkins & JR. in favor of having the SEC not investigate Facebook. Their reasoning is as follows: the law that a private firm can only have 500 investors is designed for another age and is not needed with Facebook. By having more than 500 investors Facebook would be required to disclose some financial information. According Jenkins, that would be a silly waste of time for Facebook.
Here is the assumption, Facebook is very popular, it must be making money hand over fist like Google did before they became public. This assumption might be correct, the problem is we do not know. My biggest concern is that Google is so dominate in online ads that Facebook does not stand a chance to compete. As far as I can logically tell Facebook's only major line of revenue would be advertising.
Facebook does have a product so I doubt there is major fraud, however, they do not have to disclose revenues to private shareholders. The idea behind the 500 investor rule is that a company cannot take thousands of brainless investors on a speculative ride. The SEC is doing the right thing and it is refreshing and the wisdom of Wall Street thinks the SEC is holding to archaic laws passed decades ago. For once, I side with the SEC.
I like Facebook but for all I know Mr. Zuckerberg is taking the world for ride, promising profits while surviving on new investments. I do not know if I am right or wrong but the unknown regarding Facebook's finances could make an investor rich or broke.