Is Facebook IPO Valuation Deceiving Goldman Sachs Investors?

Mark Zuckerberg, Facebook;s CEO, was claiming over 800 million subscribers.

Now that they filed their IPO they had to admit that they only have 483 million daily active users as of December 31st, 2011.

Facebook filed for an Initial Public Offering with the Securities and Exchange Commission in February 2012. A tentative IPO date is set for May 17th, 2012.

Their subscriber base was highly exaggerated because even if you cancel your account, you are still counted as a subscriber. For that reason I feel investing in Facebook may not be a good idea at the initial stage.

There are other issues that may cause the stock price to be very volatile shortly after the IPO. Mark Zuckerberg admitted publicly that he doesn't believe in privacy. This has been reported by Huffington Post, Wired Magazine, and others.

All those people who gave him personal data on themselves and their friends are not going to get the rights to that data back. He owns that data now, as stated in his privacy policy. But how many people read privacy policies before they sign up for anything on the Internet.

I know from my own experience that Facebook continues to count people who try to leave. That means there are less active accounts on Facebook than the actual number they claim. And it's all legal to claim those accounts since their privacy policy makes it clear that they own your data after your submit it.

I couldn't get my account completely deleted. How many others are there like me who try to delete their Facebook profiles?

CNBC had a recent episode entitled "The Facebook Obsession" where they reported about a woman who wanted to deactivate her Facebook account. It took a few hours and it was done, she explained. But what CNBC did not make clear is that her account is not really removed. The account is just deactivated.

People can still find your profile and it looks like you are still there. These deactivated accounts remain accessible, through Google and other search engines, for people to find.

The true number of subscribers may very well be a heck of a lot less than what Zuckerberg is saying. Does the 800 million include all those deactivated accounts?

I could be wrong. But why then are they keeping all those accounts of people who no longer want to be on Facebook and why are they making them look like they are active accounts?

Goldman Sachs' wealthiest clients are trusting their investment in Facebook without reporting to the Securities and Exchange Commission. Are they being fooled?

Even if they go public, the reports of their financial condition that need to be supplied to the Securities and Exchange Commission will disclose their finances, which I am sure are good because advertisers pay a premium based on the 800 million subscribers that include people who Facebook counts, but are not really active or haven't used it for years, like me.

I would think that eventually all this will unfold after the IPO and the public will become more alert to the actual number of active eyeballs, that can be quite abut lower than the 800 million being claimed.

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Goldman Sachs invested $450 million in Facebook in order to sell shares to their high-net-worth investors.

Normally, companies with more than $10 million in assets whose securities are held by more than 500 owners must be registered with the Securities and Exchange Commission and must make full public disclosures with annual and periodic reports. These rules are from the Securities Exchange Act of 1934, rule 12g5-1(b)(3).

But…The investment by Goldman Sachs is treated as one investor even though they internally disperse the investment among more than 500 investors.

What a gimmick! So Facebook does not need to divulge information about their finances or their actual subscriber numbers because they will still have less than 500 investors.

Is anyone doing their due diligence before making those investments and trying to find out how many of us are actually just deactivated Facebook accounts? Very few know how to get their profiles totally deleted.

Who is going to get burned? Goldman Sachs has the right to invest another $1.5 billion of their wealthy client’s money in Facebook through their wealth-management division. Even if there are more than 500 of these investors, the SEC still considers this to be a single investor. That being Goldman Sachs.

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The Wall Street Journal reported that in 2008 more 98% of $1.3 billion was lost from Goldman Sachs investments with Libya's sovereign-wealth fund, which was controlled by Muammar Gaddafi.

In this video at the right Eliot Spitzer discusses prosecuting Goldman Sachs and he talks about why people are afraid to sue Wall Street banks for lying.

There is no incentive for Goldman Sachs to change their way of doing business. If they fail, they get a bailed out by the government using our tax money.

What about all those Goldman Sachs clients who are pooling their money together without any due diligence? Goldman Sachs is bypassing the security of the SEC and allowing Facebook to escape federal disclosure requirements. And they are allowing their clients to throw their hard-earned money into an investment that they can’t even analyze.

Copyright © 2011 Glenn Stok

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