Are you suggesting Goldman is using fraud to inflate the value of Facebook? If not, the comparison to Madoff is a nonsensical and inflammatory one.

You all seem to be intentionally avoiding the fact that facebook has an intrinsic value independent from its market cap.

Goldman increased the value of facebook stock by 20%. Directly linking market cap to intrinsic value would require the Efficient Market Hypothesis, which I'm pretty sure no one believes anymore.

In fact fundamental analysis is predicated on the very idea that company value is independent from stock market valuation.

How else can Warren Buffett make so much money investing in undervalued companies if their value is identical to valuation?

Exactly, this is all I was getting at. Has nothing to do with fraud.

Then why bring up a company which was overvalued primarily due to fraud? Why not bring up, e.g., Pets.com or AOL?

Look, the parent post stated that if people are willing to buy into a company at a particular valuation, then the company is by definition worth that much to investors. This is false and the Madoff scheme demonstrates it, as would any other ponzi scheme or speculative bubble that has collapsed. If you prefer a different example, write your own post.

I think the argument here is that the value of an investment ought to be the net present value of expected future returns on it (which in the case of a stock is theoretically equivalent to net present value of future dividend or stock buyback gains over the lifetime of the stock) If people are buying stock for more than that they're overpaying, whether due to misrepresentation of facts or bad predictions of the future. Unlike consumer goods, there is an objective measure of a "wrong" price[1], and that's one where you have no long term prospect of recovering the income from the share of the company itself, even if you can still profit from selling to other speculators willing to pay more.

[1]albeit not one that non-omniscient investors are ever likely to know