This week, a financial firm asked a bunch of wealthy individuals if they'd like to make an investment.
I've always assumed that this was standard operating procedure for Wall Street executives. After all, there has to be more to life than Angry Birds and subprime mortgages.
In this case, the firm was seeking investors for Farmville.
Sorry, no, that's wrong. What was offered this week was the chance to invest in Facebook, for a minimum ante of $2 Million.
Somehow this irked regulators, presumably because nobody invited them to the party. But regulators should feel accustomed to exclusion from their days as hall monitors. Instead, I think what really bothered them is that they were outsmarted. Like Wyle E. Coyote, they have once again ended up with an anvil on their head.
So, just how were the authorities outwitted? The answer lies in financial gobbledygook.
The Official Rules of Financial Stuff Nobody Cares About state that an entity need not disclose how much money it is losing until it has 500 investors. In the Facebook scenario, these rules are circumvented by the use of a "Special Investment Vehicle." You may have seen SIV's before - they are the same structures that starred in previous financial miniseries including AIG's "The End of The Economy," and Enron's "Death to the Common Man," featuring Jeffrey Skilling.
By staying under the disclosure radar, nobody needs to prove that an investment is actually worthwhile. In other words, nobody needs to show that the only tangible assets of Facebook include a bathrobe and a bong.
So, for example, here is how disclosure looks with under 500 investors:
"Facebook is a social networking platform that makes it easier for you to slack off at work. The goal of Facebook is to decrease user intelligence. Profit is an afterthought that will be addressed only when we get bored with Bejeweled."
But here is is disclosure after the threshold:
"Facebook is a social media platform which will use personal information for profit. Blah blah margin, capital infusion, growth strategy. Yadda yadda revenues, assets, liability, market share. If you invest you will either be richer than Bill Gates or homeless. We don't frankly care which because we are busy having massages on our private yacht."As you can see, robust disclosure is a tremendous asset to the investing public. We need only to look back to the tech boom/bust for proof. Sock puppets, anyone?
Myself, I am hoarding my spare $2 Million for a more worthwhile opportunity. I hear Allen Stanford is looking for investors...
tlc
