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Monday Grok: No class, just all class action around the Facebook IPO

What's a billion bucks between friends? Nobody tell the renters

Numbers are lazy. Bigger numbers are even lazier. Or perhaps it’s just that people like me who quote them all the time are lazy about how we use them. That’s probably because after a while you pass so many noughts before you trip over a decimal point that their impact is lost in the interference.

But think about a billion dollars for moment. Imagine that tomorrow — through the providence of whichever particular sky pixie you subscribe to — that you could write a cheque and clear all your debts. Your mortgage, the investment property, the car repayments, all the kids school fees through to graduation, maybe a margin loan, and don’t forget the credit cards. Even the pre-paid contract on that shiny new iPhone 4S.

Now, calculate just how much change would be left over from One Billion Dollars. It’s frightening, really. That’s when you realise that most of us are just playing in the little leagues and always will.

But the people at Facebook, they’re different. And the underwriters behind them at places like Morgan Stanley and Goldman Sachs, and the investment bankers and the brokers and the whole grubby shameless self-propagating financial merry-go-round — the ‘1 per centers’ who are always telling the 99 about why things have to be different (especially the vig— yeah, that’s only going to get bigger). They are playing a very different game to the rest of us.

Yeah, those folk understand a billion dollars like you and I understand a gas bill that’s three days overdue. And in the four years since they almost brought western civilisation undone — presaged by Lehman Brothers collapse — it’s apparent they have learned absolutely nothing at all. Except perhaps, that hubris is its own reward.

Here’s what appears to have happened with the Facebook IPO. At some point after it issued its initial prospectus, the people who count the money at Facebook realised there simply wasn’t going to be enough of it to make their targets. That sounds like the kind of material change that the markets would like to know about.

So someone — let’s call them collectively "Facebook" for the time being — told the underwriters, and the underwriters told some, but crucially not all of the institutional investors. They told their chums in the club, basically. And nobody told anybody outside the club.

Grok has no idea whether in the US that’s legal or illegal. But he has very strong views about whether it should be or not. So do the folk in the US who have filed a class action lead by Hagens Berman Sobol Shapiro which is apparently ticking up to more than a billion dollars in claims. Assuming that action goes ahead, and assuming he loses, and assuming he graciously pays it all out personally, that billion dollar figure is still much less of a hit for Mark Zuckerberg than the $2.2 billion he has personally dropped in value since this fiasco began.

It’s all a long way from the happy snaps of his wedding day which greeted the punters immediately after the IPO valued the social network at $104 billion dollars. Let’s hope he’s enjoying the honeymoon.

But the real damage is not the money, because the numbers will recover. As a matter of fact, as MG Siegler pointed out in his personal blog, given that the point of an IPO is to raise money for a company, Facebook, and Zuckerberg made out like bandits. (‘Bandits’ is my term, not his.) Indeed, Siegler pointed out that it was the bankers who got creamed.

But it’s Facebook’s reputation and possibly Zuckerberg’s too that risks the most collateral damage once we understand exactly what went on, or who knew what, or who told whom and crucially who did not. Those bankers, meanwhile, were just being bankers — and not very successfully.

Henry Blodget at Business Insider does a much better job that Grok ever could explaining where this all stands. You can read his column here.

Apropos of nothing

Grok found himself on the Bill and Melinda Gates Foundation website recently, trying to wash a nasty taste from our soul. You remember Bill. He and his foundation have been busy doing something even more interesting than building, what was for a time, the greatest fortune in the history of the world. They have been giving it away — a little more than $26 billion in grant commitments since the inception of the fund.

So, do you want to know what one billion dollars looks like? It looks like this.

Andrew Birmingham is the CEO of Silicon Gully Investments. Follow him on Twitter @ag_birmingham

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