FINRA, SEC to Investigate First-Day Facebook Stock Problems
May 23, 2012 3:46 PM
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Facebook, NASDAQ, banks and underwriters associated with the IPO are all being sued
U.S. financial regulators are investigating claims by investors who say that they didn't receive all the correct information before buying Facebook's stock.
All seemed to be going well for Facebook, which had launched the largest initial public offering (IPO) of all time last week. The social network went public at $38 per share on Friday, and the company was
valued at over $100 billion
However, this IPO domination soon took a tumble only days after launch. On Monday, Facebook shares plunged 11 percent, and fell a total of 19 percent in a two-day span. According to
, the company lost over $19 billion in market capitalization from the $38 per share offering price when it closed at $31 per share.
Now, Morgan Stanley, Goldman Sachs Group Inc. and JPMorgan Chase & Co. are being sued by investors in Manhattan federal court who claim that they were lied to about Facebook revenue forecasts before purchasing stock. Other underwriters, like Bank of America Corp. and Barclays PLC, as well as Facebook executives, are being sued as well.
According to reports, underwriters had like Morgan Stanley had selectively shared Facebook estimates, leaving out certain details that would have possibly changed investors' minds. Morgan Stanley reportedly cut its revenue forecasts for Facebook only days before the IPO launched, yet failed to let investors in on the changes.
Banks named in the suit had also cut their estimates for Facebook for the full year 2012 and did not inform investors
before the IPO
"The underwriters took down their earnings estimates dramatically during the road show and only told a select group of investors," said Samuel Rudman, a lawyer for the plaintiffs.
This has led to an investigation from the U.S. Securities and Exchange Commission (SEC) as well as the Financial Industry Regulatory Authority (FINRA). The two will review the first day trading of Facebook shares.
"That's a matter of regulatory concern to us and I'm sure to the SEC," said Richard Ketchum, the Financial Industry Regulatory Authority's chairman and chief executive. "And without saying whether it's us or the SEC, we will collectively be focusing on it."
NASDAQ is also under the microscope in the Facebook stock fiasco. A Facebook investor sued NASDAQ yesterday in the same Manhattan federal court for mishandling trades in Facebook stock. This ultimately led to delays in customer orders. The investor is seeking class-action status for the suit and is representing all
investors who lost money
because their orders were not processed appropriately.
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RE: People Are Stupid
5/23/2012 5:11:13 PM
The Facebook IPO reminded me of the PS3 launch. I had a friend who bought several PS3's on the day it launched to sell it on eBay because those who did so with the PS2 made a lot of money. But the only problem with that strategy is that far too many other people did the same thing. Eventually my friend had to unload most of his PS3's at a loss.
It seems to me that many of the early investors of Facebook only bought the stock to sell. If everybody is selling then nobody is buying and the price drops.
RE: People Are Stupid
5/23/2012 8:24:21 PM
Yeah, I thought the original $28 per share was a little high for the company. At $38 a share they were way over priced.
There were probably a number of investors hopping that the value would go up just after the IPO, where they could turn there investment around and make a quick profit. Most of those investors probably bought the stock on margin, so when the stock price dropped it was sold off (probably automatically) at a major loss to the investor. Now the investors are suing the banks because their get rich quick scheme back fired.
RE: People Are Stupid
5/24/2012 6:01:01 PM
I really like how they call someone who buys a stock today and sells it again today or tomorrow an "Investor". They are nothing more than gamblers who sit at the stock exchange or on a computer and roll stocks instead of dice. I guess if I ever go to Vegas and lose at the tables I should sue the casinos and the travel agents because I did not win big yet their brochures show all these happy people with money in their hands.
You invest in something because you believe in that company and want to help it grow, if you are in it only to make some quick cash then you are just a trader, plain and simple.
"We basically took a look at this situation and said, this is bullshit." -- Newegg Chief Legal Officer Lee Cheng's take on patent troll Soverain
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