Goldman Sachs just can’t seem to get a handle on the media. In a statement Monday about its private placement of Facebook securities, Goldman Sachs said, “The transaction generated intense media attention. In light of this intense media coverage, Goldman Sachs decided to proceed with the offer only to investors outside the U.S.” How ironic.
In the past few years, Goldman has come under intense public scrutiny for its bets against the U.S. housing market, its billion-dollar backdoor bailout through the government’s rescue of AIG, and its jaw-dropping multimillion dollar bonuses. The presence of Goldman alums in top political seats and regulatory posts has inspired all kinds of conspiracy theories. Last year, when Goldman paid $550 million to settle SEC fraud charges involving the sale of mortgage securities, it was praised for quickly putting a close to a very unflattering chapter. Finally, it seemed the giant investment bank could slowly wake up from its PR nightmare.
We were reminded once again that Wall
Street is played like an insiders’
game, reserved only for the
wealthy and the well-connected.
But it fumbled again. Just a month after Julian Assange proved that no secrets are safe, news leaked that Goldman had access to Facebook’s equity and would allow only its most prized clients to invest. Public outrage ensued as we were reminded once again that Wall Street is played like an insiders’ game, reserved only for the wealthy and the well-connected.
Goldman’s mistake was not that it assumed this deal would be kept secret. Its mistake was its underestimation of the media frenzy it would generate. With the possible exception of a few outposts in China and North Korea, Facebook has members and makes news all over the world. The Social Network, the blockbuster film about how the company was founded, just won four Golden Globe awards from the Hollywood Foreign Press Association. It doesn’t take a Ph.D. in statistics to run a basic analysis; it takes just a simple analogy. Imagine that Facebook is a person and is one of your friends. One Monday morning, you find out that your friend went from being single to being in a relationship with Goldman Sachs. That would raise some eyebrows.
Goldman doesn’t understand the media or
the power of social networks. This raises
doubts about how it valued Facebook securities.
A relationship between the world’s largest social network and the world’s most influential investment bank is something worth telling your friends. Facebook provides a platform to do this. In fact, studies show it may be the world’s most popular source for news. Surely, some of Facebook’s 600 million users posted this story and shared it with their friends. The multiplier effect of this activity is at least partially responsible for the new terms of the transaction. In its statement, Goldman said that it had “concluded the level of media attention might not be consistent with the proper completion of a U.S. private placement under U.S. law.” It’s an irony almost worthy of a Greek tragedy.
Goldman has proven that it doesn’t understand the media or the power of social networks. So, it’s also worth noting that this raises doubts about how it valued Facebook securities. Indeed, reports suggest this offering is significantly oversubscribed. Perhaps Facebook should seek a new banker. At the very least, it might shop around before deciding on a lead underwriter for an upcoming IPO.
Will Goldman Sachs ever prove that it understands media in this new world connected by electronic social networks? You would think it would. Regardless, as a member of the media who has written about Goldman in the past, I can’t help but be grateful for the seemingly endless supply of newsworthy stories coming from the controversial bank.