Evil Twins?

Some people don’t know when to quit.

The Winklevoss twins were Harvard students along with Mark Zuckerberg in 2003. They hired him (with no pay and with no contract) to do some work on a website initially called “Harvard Connection,” and later, “ConnectU.” At its height, the site had fifteen thousand users at two hundred colleges. In a Federal lawsuit, the twins claimed that Zuckerberg stole their ideas when he started Facebook. Eventually, they settled their suit for $20 million in cash and $10 million in Facebook stock—which is now worth about $40 million. ConnectU was abandoned shortly after they received their settlement.

The twins and their roommate, Divya Narenda, have decided that social networking is too important to pass up. So they’ve decided to start up a new social site organized around investment analysis, called SumZero–which about sums up the concept.

The idea is that investment analysts can share their insights with others online. Say you’ve done an in-depth review of Johnson and Johnson’s balance sheet and you’re convinced they have undervalued assets; or you personally know Alex Gorsky, the new CEO. You could post your idea and read the thoughts of other analysts. Narenda says he has received hundreds of applications to be part of the new network, and is rejecting three quarters of them.

The appeal is clear: spread the word about investments you own, and promote your holdings. In some venues we would call that pump-and-dump. Portfolio managers have lost their jobs by talking up stocks they were really selling. This just takes it to a social-network level. From a fiduciary standpoint this is a profoundly stupid idea.

It’s easy to dismiss the Winklevoss twins as uber-WASPy jocks who had a good idea and were out-hustled by a nerdy computer entrepreneur. But I think they symbolize something more: the triumph of the litigant. As Zuckerberg himself said, every time you do something successful, somebody tries to get a piece of the action. But this time they’re the ones likely to get sued.

Douglas R. Tengdin, CFA
Chief Investment Officer
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