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 8:19:14 PM
It is a website similar to GeoCities and MySpace, but with more features. We all know what happened to those sites.
Not to mention the fact that Facebook has admitted to lower profits on mobile devices. I would not be surprised if most Facebook users in the US use a mobile device more then a computer to interact with Facebook.
Facebook has potential to grow, though the forecast does not look good.
RE: People Are Stupid
5/24/2012 11:49:33 AM
Exactly! It is Geocities but with a dumbed down, plug and play UI attached to it instead of forcing you to write your own HTML--well, and linking between sites.
I predict that FB will start charging users a small monthly usage fee at some point. Now that they are public, SuckerBerg will learn all about the pressure that gets put on CEOs from shareholders. They want to see dollar signs.
Once they start charging users... we'll see a mass exodus to the next big thing. Out of those 900 million users, I bet a TON of them won't want to pay a fee. Free is king on sites like this. The thing is, free doesn't sit well with the stock market.
"You can bet that Sony built a long-term business plan about being successful in Japan and that business plan is crumbling." -- Peter Moore, 24 hours before his Microsoft resignation
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