A Super-Scam

We are about to see a super-scam

The unholy alliance between Goldman Sachs and Facebook tsuggests that a lot of suckers are going to get skinned.


The GS modus operandi, as analysed in a famous Rolling Stone article, is to take a stake in an asset, then blow that asset class into a huge bubble, sell out before the bubble bursts, and watch the suckers lose their money


Last week GS paid £290m for a near 1% stake in Facebook. It is trying to sell Facebook shares to its clients.


In doing so, GS is predicating a value of $50 billion for Facebook. Annual revenues are thought to be $2 billion.


Facebook’s success depends on the favour of  tens of millions of young people – a notoriously fickle customer base.


Just remember:


Friends Re-United was bought by ITV for £175m and sold three years later for £25m.


MySpace was bought by News Corp for £375m and sacked half it staff this week. It is believed News Corp wants out.


Bebo was bought by AOL for $850m and sold two years later for $6.5m.


Remember: Tulipmania,  the South Sea Bubble, Aussie mining shares and the dot.com boom?


A few may make money on the up-swing if they sell in time.


But what we are about to see, my friends, is a scam.



Tags: stake, suckers

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  1. AndyRem
    January 20, 2011 13:48

    Ha Ha, of course Facebook has a bright future – what else are you all going to do all day with your i-Things?

  2. David Manners
    January 19, 2011 14:25

    And a lot more people lost their money, El Rupester.

  3. El Rupester
    January 19, 2011 13:49

    “the shares have to be listed somewhere”
    Not quite. It is not uncommon for some pension funds to buy in at a mezzanine or pre-IPO round before shares are listed – so long as they do believe they will list.
    The acquirer gets a discount, company gets cash and it is a nice way to ‘soft start’ the IPO.
    That was some of the motivation for this transaction.
    One of the reasons it was pulled in USA was that it would have triggered various listing requirtemnts with SEC; they felt this offer was “effectively” an IPO.
    It’s a loony valuation but if you look at Amazon or Google you can see why some people think it is worth a punt.
    Docom bubble 2.0 — but some people made a lot of money out of that bubble.

  4. David Manners
    January 18, 2011 19:01

    I think the BVCA includes more than just VCs Mike – it’s for money men generally. Clearly Facebook is trying to colour the zeitgeist.

  5. Mike Bryant
    January 18, 2011 18:52

    Well I fail to see how Facebook needs VC money so that’s an odd meeting. It’s virtually at the IPO next stage when people like GS and Deutsches Bank hawk the company to OUR pension funds. But to do that the shares have to be listed somewhere.
    Smells more rotten by the minute.

  6. David Manners
    January 18, 2011 17:03

    I don’t know about that, Mike, but Facebook’s EMEA vp gave a lecture to the British Venture Capital Association last night, and wrote a piece for the Telegraph on Tuesday, both of which were plugs for Facebook. Incidentally the Facebook vp was CEO of Bebo when it was sold to AOL for $850m and which was re-sold two years later for $6.5m. I wonder why Facebook hired her? I guess the Yanks think we’re daft.

  7. Mike Bryant
    January 18, 2011 16:54

    Do GS have a licence to sell unlisted US shares in the UK ? I suspect not.
    Sounds like they are going into the boiler-room scam business.

  8. David Manners
    January 18, 2011 15:57

    Well it looks as that’s hapening already, Sceppers. Yesterday GS dropped its plan to sell Facebook stock privately to US investors and now plans to sell it to non-US investors. In the offer document to US clients it was stated that GS could flog its shares whenever it wanted to without telling investors, but investors were going to have ‘significant restrictions’ put on their ability to sell their shares. And this from a firm which has just paid a $550m fine to settle fraud charges for advocating an investment while not telling potential investors that a hedge fund was planning to bet against it. You can see the GS modus operandi – buy in, hype the shares, lock investors in, sell your own shares and bet against the shares on the way down. And the good old US taxpayer bailed out AIG so that GS could survive on its investment insurances.

  9. Sceptic
    January 18, 2011 11:33

    To simultaneously paraphrase and misquote ‘Jez’ from Channel 4′s The Peep Show.
    ‘I will sit back and wait for it all to blow -up in their stupid faces’.

  10. David Manners
    January 17, 2011 10:01

    No one knows, David, but I quote the Wall Street Journal: “According to people familiar with the document, Facebook had net income of $200 million in 2009 on revenue of $777 million. Figures for 2010 weren’t disclosed, but analysts have said the company’s revenue last year could be as much as $2 billion, fueled by advertising growth.”

  11. Robert
    January 17, 2011 04:13

    I agree with Greg, GS wants a way to effectively write “covered calls” on Facebook, this investment is an “insurance” against any absurd spike in the implied value of the stock. Trading Naked options on a private companies future is absurdly risky, even for GS.
    My guess is that the derivatives they sell will probably be more internet sector focused than simple short/long trades against Facebook.

  12. David Sweetman
    January 16, 2011 16:47

    David, I thought Facebook’s annual revenue was $2 million, not $2 billion; the latter is quite a respectable revenue!

  13. David Manners
    January 15, 2011 13:25

    Be careful, JP

  14. greg
    January 14, 2011 21:30

    I’m not sure 50bn is enough to cause an event. I suspect that its simply a nice sideline for them to create paper from nothing. They are called Synthetic securities for a reason. Ie they could conjour up, print and sell derivative credit default swaps based on valuations like these. Theres a reason the fed calles Goldman a ‘marketmaker’. But I agree David, if Goldman wasn’t the ‘annointed one’ they would be calling it a scam.

  15. JP
    January 14, 2011 17:48

    Ah yes, the gullible hacks. Good job we’re not reading their blogs!

  16. David Manners
    January 14, 2011 13:53

    Yes indeed Luke, we should be prepared for a Himalaya of bollox as gullbile hacks and feeble-minded analysts regurgitate the yarns being spun by Goldman Sachs. It will be entertaining.

  17. Luke
    January 14, 2011 11:38

    $50bn may not be enough, according to a piece in the FT last weekend! Facebook is going to weave itself into every aspect of our lives, it says, providing a new way for us to be ourselves, and replace algorithm-driven search with personal recommendations – ousting Google, apparently.
    You’d think punters would have learnt by now that if Goldman Sachs says it’s a good idea, you should run in the opposite direction as fast as you can.
    Just goes to show that that those who are unable to learn the lessons of history are, as they say, doomed to repeat them.

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