The 5 Dumbest Things on Wall Street: Jan 7

5. Goldman "Pokes" Facebook Investors

What do you get when you combine a company your financial adviser wouldn't touch with a ten-foot pole, a Russian "oligarch," and mind-blowing fees? You have an investment opportunity!

That, at least, is what Goldman Sachs ( GS) is telling well-heeled clients about plans to invest in social networking site Facebook.

This week it has been reported that Goldman and Russian firm Digital Sky Technologies will seed a $500 million fund that will take a stake in Facebook. The deal is structured so that Goldman can take in additional investments from wealthy clients while officially being classified as just one investor.

Wow, this is wrong on so many levels.

First are reports that Goldman passed on taking a direct stake in Facebook because its head of private equity thought the investment placed too high a value on the company. That's a smart move, given that this particular company has a revenue stream based on farming imaginary corn and is run by a CEO who was portrayed in a recent movie as a devious, disloyal social misfit.

Undaunted, Goldman has moved ahead and decided to set up an investment vehicle with the help of Russian Internet conglomerate Digital Sky, which is owned by Alisher Usmanov. Don't know Alisher? Well, he is typically portrayed by Russian media as an "oligarch" whose Internet properties comingle mining and lumber. In fact, any investor thinking of joining hands with Usmanov should consider using Facebook competitor Google ( GOOG) to get a bit of information.

Let's just say you are not likely to find some of that bio information in the prospectus.

After you get past the valuation and get comfortable with your fellow investors, well, get ready to pay. The Wall Street Journal reports that Goldman will collect an upfront fee of 4% in addition to a 5% share on any investment gains. That's on top of a possible "private-placement fee" between 2% and 4% for arranging the deal.

Given the reported size of the investment of $1.5 billion, a maximum fee of $195 million is not a bad payday for a running investment that didn't pass the smell test for your best private equity guy.

TheStreet Says: Looking for another bad sign? Goldman's private wealth executives may not even know what they're buying, consider they had to get a tutorial on how to use "the Facebook" from the company CFO.

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