With Facebook Deal, Goldman Sachs Now Able to Get Clients to ‘Shaft Themselves’

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Another reason for Lloyd to smile. Photo: Daniel Acker/Bloomberg via Getty Images

With Sunday night's announcement that Goldman Sachs had invested $450 million in Facebook, one could almost hear the supple leather stampede of Ferragamo loafers beating down Lloyd Blankfein's door. After all, with Goldman's rare "special purpose vehicle," its private clients would be able to invest $1.5 billion collectively, without the SEC's oversight, in a social network that Goldman conveniently just inferred was worth $50 billion. And all for the rumored low, low cost of a minimum of $2 million and a promise not to sell until 2013. That is, if clients were willing to do it within the week and without the requisite memorandum explaining the risks.

Such is the magic of Goldman, reasons Fortune contributing editor Duff McDonald. In an article about the five reasons McDonald is not buying Facebook stock — including the troubling facts that (1) no one knows the company's actual financials, and (2) people use it to play backward games like Farmville and Cityville — he also cited Goldman's involvement as a reason to be wary. But we prefer to see McDonald's criticism as yet another reason for Goldman to be proud of being so dang vampire squid about the whole thing. Market manipulation is so baller. We're glad it's making a comeback so early in the new year.

Reuters' Felix Salmon has already pointed out that Goldman's motivation in investing in Facebook is partly to lock down the lead slot as a book runner for when the company does go public. Others have remarked that, depending on the fees that come with Facebook going public, Goldman might pay for its investment on that alone. According to Yipit founder Vinicius Vacanti, when you count them up, Goldman's strategic investments in Facebook actually value the social network closer to $36 billion. McDonald pegs it at $39 billion. Although, of course, it's in Goldman's interest to make everyone think Facebook looks like it's worth $50 billion, which might explain the rush job and lack of private placement memo.

By McDonald's hypothetical math, if Facebook offered the public a chance to buy 20 percent of the company in an IPO, that would be worth $10 billion. Goldman would earn a 2 percent underwriting fee as a book runner on that $10 billion, picking up $200 million. McDonald continues:

Goldman would have to share such spoils, so let's call it $100 million into their pocket. Subtracting that underwriting fee [$100 million] from the Goldman investment [$450 million], and you could easily make the case that for a net purchase price of $350 million, Goldman's ante only values Facebook at $39 billion. Hey, that's just off by $11 billion, so don't worry about it. Buy your shares where you can get them. In other words, go open a $10 million minimum private client account at Goldman Sachs. (Who says Goldman didn't learn its lesson about shafting its own customers? This time around, they've managed to get the customers to line up the shaft themselves.)

C'mon, you don't get to be America's great big bubble machine by expending energy trying to shaft clients. You gotta teach them to do it for themselves. Sorta like "give a man a fish," only, you know, with shafting. By Salmon's reasoning, even if Facebook stays private, Goldman could make out with an even handsomer reward with more private placement deals. "Right now, [Goldman's] in the highly enviable position of having the exclusive ability to parcel out Facebook shares to its own clients, and to make money on pretty much every trade in Facebook shares. That, surely, is more valuable than any one-off IPO fee." The greatest trick the devil ever played was convincing the world that Facebook was definitely worth $50 billion in January 2011? Is Lloyd Blankfein Keyser Söze?

Five reasons why I'm not buying Facebook [Fortune]
Goldman’s Investment Actually Values Facebook At Much Less Than $50 Billion [BI]
Why Facebook won’t go public [Reuters]
Related: Goldman Sachs Investment in Facebook Makes That $50 Billion Valuation Look More Legit