* Goldman to exclude U.S. from Facebook private placement
* Goldman cites "intense media coverage" for its decision
(Adds banker comment)
By Ilaina Jonas
NEW YORK, Jan 17 (Reuters) - Goldman Sachs (GS.N) will exclude U.S. investors from the sale of shares in networking site Facebook, in a sign public scrutiny is becoming a rising worry for the world's top deal maker.
The investment bank expects to raise $1.5 billion from its best wealthy clients in a high-profile private placement that is expected to go down well given how wildly popular the message board and online social networking website is.
But the bank decided not to sell the shares to U.S. clients after "intense media coverage".
"The level of media attention might not be consistent with the proper completion of a U.S. private placement under U.S. law," it said in a statement on Monday.
"We regret the consequences of this decision, but Goldman Sachs believes this is the most prudent path to take."
The decision not to conduct a private placement of the shares of Facebook, a closely held company, in the United States was solely its own and was not required or requested by any other party, Goldman said.
That would include the U.S. Securities and Exchange Commission (SEC), which is already scrutinizing secondary trading in privately held Facebook shares.
Several weeks ago, Goldman -- which topped the 2010 M&A league tables [ID:nLDE6BT0HV] -- approached its private clients with an offer to take part in a special fund that will own shares in world's biggest social networking site.
The deal would allow clients a hot investment, while allowing Facebook to remain a private company.
"Once this event received widespread publicity, it conceivably could be argued that Goldman was benefiting from a general solicitation, via news reports of its efforts on behalf of Facebook," former SEC Chairman Harvey Pitt said.
The New York Times' DealBook column on Jan. 2 reported that Goldman had offered clients the chance to invest at least $2 million before a possible public offering in 2012.
The article, citing emails to clients, also said investors would be prohibited from selling their shares until 2013.
"My impression is that Goldman is using that as an excuse to save face, given the SEC investigation that has been publicized in the press, as a result of this proposed transaction," said Pitt, who now heads consulting firm Kalorama Partners.
THRESHOLD
Under U.S. securities law, if a company's private shares are held by more than 500 holders of record, the company is required to register with the SEC and file public disclosure statements.
But the rules generally define the term "record holder" as the name displayed on the company's stock record, and not the beneficial owner of the stock.
The shares in the Goldman private placement would be in a special purpose vehicle, registered in Delaware, Facebook disclosed earlier this month.
This would allow numerous investors the opportunity to buy stock, but holdings would have been under one name.
"Facebook is a very unusual transaction, in the sense that it is basically a non-public IPO," one European equity capital markets banker said, requesting anonymity.
"Essentially they are selling to retail, they are not even selling to institutions, all be it very high net worth retail," this banker said.
While general solicitation and advertising is still prohibited overseas, if the publicity has not been as widespread in other countries, the issuer and the underwriter could get comfortable proceeding with the offering, said an industry attorney who has advised companies with similar issues.
The Washington, D.C.-based attorney asked not to be identified because of the sensitivity of the issues surrounding private placements.
Facebook already has received a $450 million investment from Goldman Sachs and $50 million from Russian investment firm Digital Sky Technologies, in a deal that valued the company at $50 billion.
Facebook said it expected to have more than 500 shareholders this year, according to documents related to the private placement, That could force the company to make public disclosures or go public as early as 2012.
(Additional reporting by Rachelle Younglai in Washington, Nadia Damouni in New York and Kylie MacLellan in London; Editing by Douwe Miedema, Richard Chang and Martin Golan)
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