Investing in Facebook...Goldman-Style

Gee, we couldn’t possibly have seen this coming: Goldman Sachs says they’ll stop taking orders from its “high net worth” clients for shares of Facebook. And some of those clients have been told they’ll have to settle for far fewer shares than they want, so intense is the demand.

This is according to The Wall Street Journal, citing “people familiar with the situation” – as if Goldman doesn’t really want this information put out there to further gin up demand for the inevitable IPO.

“When you have a chance,” reads the Goldman solicitation to its clients, “I wanted to find a time to discuss a highly confidential and time-sensitive investment opportunity in a private company that is considering a transaction to raise additional capital.

“For confidentiality reasons, I am unable to tell you the name of the company unless you agree not to use such information other than in connection with your evaluation of the investment opportunity and to keep all information that we reveal to you strictly confidential.”

Any resemblance between this and a Nigerian email scam is purely coincidental. At least it wasn’t in all caps.

“It looks to me like that’s typical of what the investment banks have been doing for the past decade, which is trading paper for profits, instead of investing in revenue streams,” we told Tech News World this week.

Unfortunately, in the process of editing the article, our central point got lost: How the whole thing smacks of a Ponzi scheme. Goldman’s clients get the big gains, while the IPO investors will be left holding the bag. Plus, it looks like the deal as it’s structured with Digital Sky Technologies gives Goldman’s clients a built-in out…even before the IPO.

Good position, if you can land it.

But the question remains: If Goldman writes to its best clients in language that treats them like everyday marks in a wire-transfer scheme, imagine what it thinks of the schlubs who’d buy publicly traded shares.

Addison Wiggin

for The Daily Reckoning

The Daily Reckoning