The investment bank and its funds will sell 28.7 million of the 65.9 million shares they own, more than twice the amount initially planned, Menlo Park, California-based Facebook said in a filing. The shares are being offered in a range of $34 to $38 apiece, meaning the stock being sold in this week’s IPO is valued between $975 million and $1.09 billion.

A gain on the investment may help validate Goldman Sachs Chief Executive Officer Lloyd C. Blankfein’s business model and a January 2011 transaction that threatened to undermine efforts to improve the New York-based company’s reputation after it settled fraud claims a year earlier.

Goldman Sachs and its funds could sell an additional 4.3 million shares — bringing the total raised to as much as $1.25 billion — if the IPO’s underwriters decide there’s enough demand, according to the Facebook filing. If that so-called greenshoe option is exercised, Goldman Sachs and its funds would cut their holdings 50 percent. Underwriters include Morgan Stanley, JPMorgan Chase & Co. and Goldman Sachs.

Group Effort

Goldman Sachs created a special-purpose vehicle to bundle the holdings under one name and sell the stock to wealthy clients. That kept it from running afoul of securities rules mandating that companies with at least 500 investors meet U.S. Securities and Exchange Commission reporting requirements. Jon Stewart, discussing the deal on Comedy Central’s “The Daily Show,” joked at the time, “Oh Goldman, is there any regulation’s intent you can’t subvert?”

A document for investors disclosed that Goldman Sachs might sell or hedge its stake without warning clients, underscoring potential conflicts in the firm’s business model of investing its own money as well as advising customers. The bank eventually said it canceled an offering of Facebook shares to U.S. investors amid concern that “intense media attention” may violate rules limiting marketing of private securities. Only offshore clients could participate in the deal.

Hedge Fund

The IPO, the largest by a technology company, would value Facebook at $104 billion at the top of the range. That’s more than double the $50 billion value at which Goldman Sachs offered $1 billion of stock to non-U.S. clients in January 2011. The firm and the Goldman Sachs Investment Partners hedge fund run by Raanan A. Agus bought $450 million of Facebook stock.

A Bloomberg poll in late January 2011 found that 69 percent of global investors, traders and analysts surveyed thought the $50 billion valuation was too high.

Goldman Sachs, the fifth-largest U.S. bank by assets, is selling 6.18 million of the 14.2 million shares it owns for its own account, according to the Facebook filing. The IPO price range values the bank’s total investment at between $483 million and $540 million. The firm will be cashing out $210 million to $235 million of that total in the IPO.

The gain on Goldman Sachs’s Facebook stake will be recognized in the firm’s second-quarter results, helping to mitigate “weakness in investment banking and trading revenue,” Edward Najarian, an analyst at International Strategy & Investment Group Inc., wrote in a research note yesterday. He cut his second-quarter earnings per share estimate for Goldman Sachs to $2 from $2.60.

Stakeholders

GSIP, the fund run by Agus, is selling 1.57 million of the 3.61 million Facebook shares it holds in two different investment pools, according to the filing. At the IPO price range, GSIP will be selling stock valued between $53.4 million and $59.6 million.

Goldman Sachs’s non-U.S. clients, whose Facebook shares are held in a Cayman Islands-based investment pool called FBDC Investors Offshore Holdings LP, have a stake that’s valued between $1.64 billion and $1.83 billion in the IPO price range. The sale will cash out as much as $795 million for that pool.

Michael DuVally, a Goldman Sachs spokesman, declined to comment on the firm’s sale.