This Facebook thing is getting waaaaay out of hand.
Barry Ritholtz posted a video interview Thursday with the WSJ Hub crew in which he compares Facebook to Bernie Madoff, the ponzi king. “There’s greed and greed that gets you sent to prison,” Ritholtz says. And the reporters didn’t challenge him. Unimpeded, Ritholtz pivoted to a warning that investors must be wary of companies that invent their own system of metrics — like Groupon (arguably, a Ponzi scheme). Anyone who has ever touched a “like” button on any website counts as a Facebook user. This is no secret. It’s stated in the regulatory filing. Loads of people believe that the Facebook system of counting users is ridiculous, so they look to Nielsen or other third-party firms for the data.
And what about all that trading of Facebook on private exchanges before the IPO? That was totally opaque, Ritholtz says. I guess that’s supposed to be Bernie like. By definition, those exchanges are not transparent. Anyone who treads there is stepping into treacherous waters. That’s why you need to be an accredited investor to swim in those waters.
Do all those things make Facebook a minor Madoff? When last I checked Facebook was a real business with earnings and revenues.
True, the underwriters and Facebook tried to raise as much money as possible. They overplayed their hand. Nasdaq made a mess of the opening. And there was some real ugliness: the media is reporting that Facebook and analysts at the major underwriting firms notified favored clients that second quarter earnings were likely to disappoint — just days before the IPO priced. All that is certifiably icky. But it appears to be legal.
Even before the Facebook IPO became a slo-mo train wreck, people like me were saying don’t invest unless you are using money designated for high-risk ventures. Read my ebook, The Facebook IPO Primer. Read the Wall Street Journal. I personally know brokers even at Morgan Stanley were trying to steer away their clients. The media was filled with interviews with tons of bloggers and analysts saying that the company was probably worth about $70 billion, not $100 billion. In my ebook, I included one who said the company was worth only $30 billion — at the time an assertion so outlandish that I almost didn’t include it.
And what about our friend Bernie? He was the hail-fellow-well-met who lied through his teeth. The big man on campus was a putz. He fabricated monthly statements. The lone voices who questioned his returns were hushed by his admirers. Madoff deserves to be in jail for the rest of his cursed days.
But the execs at Facebook? I don’t think that should be their fate. Unless greed and stupidity are indictable offenses. In which case we’d really have a jail-crowding problem!