Goldman Sachs's decision to take back the chance to let U.S. investors privately plunk their millions into Facebook just weeks after hyping the $1.5 billion offering has won the Wall Street firm the ire of its friends and allies. According to the Journal's sources, U.S. clients (overseas investors are still eligible) got phone calls over the long weekend saying something to the effect of, Uh, hey, remember how the other day we called you up and just chanted, "Buy! Buy! Buy! Buy!" for five minutes straight ... One angry investor, who planned on handing over $2 million for a piece of the social network, leaked the backroom details on Goldman's rough play. "They pushed me hard to get here and invest, and then they pull the rug out from under me." Reneging on the offer inspired another client to — suddenly — pay attention to where he'd been putting his millions. "Before this deal, if they told me to buy something, I'd buy it," he said. "Now I'm paying attention to the fees. And I'm going to tell all my friends who are Goldman clients to look at their fees." We guess their private clients pay as much attention to million-dollar investments as we do to our bank statements? Facebook executives, who didn't even need the $2 billion, are also ticked off that the arrangement backfired. Really, the whole thing plays out like an early Valentine's gift to Morgan Stanley.
This was not supposed to go down, of course. Goldman's investment of $450 million and the $1.5 billion private offering was supposed to bolster the firm's banking division as the trading side faltered (something today's earnings report is expected to show). The Facebook deal was "meant to quietly increase the Palo Alto, Calif., company's luster." You know with quiet, subtle, near-imperceptible headlines like "Holy Shit, Goldman Says Facebook Is Worth $50 Billion AHHHHHHHH." But in the wake of the (totally unexpected) media spotlight around the valuation and sidestepping of SEC regulations for private companies, Goldman backtracked after realizing it "might violate U.S. securities laws and expose the firm to legal action."
But it's not all bad news. Although Facebook might now be able to negotiate lower investment banking fees, the Journal says Goldman is still on track to manage its IPO in 2012, especially considering Yuri Milner, that billionaire Russian buddy they both have in common. Like we've been saying, by hook or by crook, everything they touch turns to Goldman.