Subpoenas Issued as Regulators Probing Shady Dealings in Facebook Stock Debacle
- Posted on May 23, 2012 at 8:01am by
Jonathon M. Seidl
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WASHINGTON (The Blaze/AP) — Regulators are examining whether Morgan Stanley, the investment bank that shepherded Facebook through its highly publicized stock offering last week, selectively informed clients of an analyst’s negative report about the company before the stock started trading.
Rick Ketchum, the head of the Financial Industry Regulatory Authority, the self-policing body for the securities industry, said Tuesday that the question is “a matter of regulatory concern” for his organization and the Securities and Exchange Commission.
Business Insider’s Henry Blodget puts what happened in layman’s terms:
Put differently, the company basically pre-announced that its second quarter would fall short of analysts’ estimates. But it only told the underwriter analysts about this.
The information about the estimate cut was then verbally conveyed to sophisticated institutional investors who were considering buying Facebook stock, but not to smaller investors.
The estimate cut appears to have influenced the investment decisions of at least some institutional investors, dampening their appetite for Facebook stock, and crucially, affecting the price at which they were willing to buy Facebook stock.
As I described earlier, at best, this “selective disclosure” of the estimate cut is grossly unfair to investors who bought Facebook stock on the IPO (or at any time since) and didn’t know about it.
At worst, it’s a violation of securities laws.
The top securities regulator for Massachusetts, William Galvin, said he had subpoenaed Morgan Stanley. Galvin said his office is investigating whether Morgan Stanley divulged to only some clients that one of its analysts had cut his revenue estimates for Facebook before the stock hit the market on Friday.
The bank said late Tuesday that it “followed the same procedures for the Facebook offering that it follows for all IPOs,” referring to initial public offerings of stock. It said that its procedures complied with regulations.
The questions about the role played by Morgan Stanley, the lead underwriter for the deal, add to the confusion surrounding Facebook’s IPO. In the most hotly anticipated stock debut in years, the offering raised $16 billion for the social networking company, valuing it at $104 billion
On Tuesday, Robert Greifeld, the CEO of the Nasdaq Stock Market, acknowledged to shareholders of Nasdaq’s parent company that “clearly we had mistakes within the Facebook listing.”
The stock debut, originally set for 11 a.m. EDT Friday, was delayed more than half an hour because of technical problems at Nasdaq. Some brokerages were still sorting out the aftermath on Tuesday.
“Unfortunately, our clients continue to feel the effects of this in some cases,” said Stephen Austin, a spokesman for Fidelity Investments, one of the country’s largest brokerages. Fidelity was still waiting for some Facebook stock orders that it placed on Friday to be executed. Fidelity’s systems had performed normally, Austin said.
In the meantime, Facebook stock itself has been a disappointment. It fell $3.03 on Tuesday to close at $31 and has now fallen $7, or more than 18 percent, from its offering price of $38. It managed to add just 23 cents in its first hours of trading on Friday, then suffered a big decline on Monday.
The Reuters news service reported Tuesday that a Morgan Stanley analyst, Scott Devitt, cut his estimate for Facebook’s revenue this year to $4.85 billion from more than $5 billion earlier. Reuters reported that it was unclear whether Morgan Stanley had told only select clients about the reduced estimate.
Reuters reported that the analyst cut his figures for Facebook while the company’s executives, including founder and CEO Mark Zuckerberg, were shopping the stock to potential investors in the weeks ahead of the IPO, a process known in investing as a road show.
Morgan Stanley, in its statement, did not specifically address which clients might have been told about a reduced estimate from one of its analysts. It said that “a significant number” of analysts, including those from other firms underwriting the stock issue, had reduced their estimates for Facebook to reflect publicly available information about the company.
That was a reference to a May 9 regulatory filing in which Facebook said a shift by many Facebook users toward mobile devices might limit its revenue growth. Social media companies have struggled to make as much money as they would like from mobile advertising. Advertising accounts for more than 80 percent of Facebook’s overall revenue.
Morgan Stanley also said that revised analyst views were taken into account in setting the stock offering price at $38 per share. Facebook, working with Morgan Stanley, first set a range of $28 to $35 for the offering price, then raised the range to $34 to $38 before setting it at $38 on the night before the IPO.
When the stock started trading Friday, it jumped several dollars, but quickly fell back toward $38. It never crossed below that level on its first day, and outside analysts said that was probably because Morgan Stanley, eager to avoid the embarrassment of a first-day decline in the stock price, had rushed in with thousands of buy orders at $38.
The Wall Street Journal reported Tuesday night that Facebook’s chief financial officer, David Ebersman, decided shortly before the stock debut to raise the number of shares the company would offer by 25 percent. The Journal, citing people familiar with the planning of the stock offering, also reported that Morgan Stanley had assured Ebersman there was plenty of demand for the stock.
A spokesman for Facebook Inc., which is based in Menlo Park, Calif., said late Tuesday that the company had no comment.
The SEC had already said on Friday that it was looking into problems surrounding the IPO. On Tuesday, the agency’s chairman, Mary Schapiro, said: “I think there is a lot of reason to have confidence in our markets and in the integrity of how they operate, but there are issues that we need to look at specifically with respect to Facebook.”
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AP Technology Writer Barbara Ortutay and Julie Walker of AP Radio contributed to this report from New York.
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budzy1911
Posted on May 23, 2012 at 5:38pmAnyone buying this stock that wasn’t connected on the inside was a fool and deserved to lose their money. The only ones that were going to make money were the insiders – the dolts lining up to buy after the opening were needed so the insiders could make money. Now they sue because a social media site wasn’t worth more than a car company or a soda company put together.
Report Post »Joker50
Posted on May 23, 2012 at 4:52pmMy entire 401 retirement was lost in 2008….EVERY DIME. Over $750K,,,,,,I have nothing now. I cannot believe that anyone still believes in the Stock Market. These high numbers we see in the NASDAQ and S&P are all manufactured. If these numbers were true, don’t you think the large companies would be investing in their companies???
Report Post »OKC08GT500
Posted on May 23, 2012 at 8:07pmHow could you lose your entire investment? Was it in Enron stock? Did you not diversify?
Report Post »Joker50
Posted on May 23, 2012 at 4:49pmNow everyone know why the other owner left the country and took all of his money with him. Goodbye Facebook!!!!! You will not be missed.
Report Post »mlite9
Posted on May 23, 2012 at 2:25pmAn enormous example of the ‘it’s not my fault’ society we now live in. If a multinational corporation – big enough that the government ‘bailed them out’ backs away, publicly and most overtly – what more of a clue does an investor need? God himself could not have been more obvious. But, ‘I’m stupid, and it‘s Morgan Stanley’s fault’ will be used to effect, heaping blame and reproach on Wall Street. Will the real culprits be found and prosecuted? Only if they have not made the prerequisite DNC contributions.
Report Post »Micah.Stone
Posted on May 23, 2012 at 1:28pmSeriously, just how STUPID do you have to be to invested in a company so GROSSLY OVERVALUED that even a 5th grader could see that it’s a BAD INVESTMENT?
My guess is that a lot of lunatic-left d-cRAT socialists, who know absolutely NOTHING about capitalism / free enterprise (except that they want to destroy it) were suckered into buying flopbook at $38-45 / share. They were appropriated Zucked.
FYI: a somewhat reasonable and rational price for flopbook is LESS THAN $10 / share.
Report Post »Rajabear1
Posted on May 23, 2012 at 2:15pmAnyone who got all excited about owning FB stock deserves whatever they get (or better yet, loose). Same folks who vote for American idol as though their lives depend on it, for sure.
Report Post »If I could see it was all about ‘hope and change’ then anyone with any stock market sense should have been able to see it too.
All of this crap has the indicators of the left/NWO freaks game playing. All you have to do is read recent history, ignore (disbelieve) MSN, open your eyes and use common sense and the puzzle pieces fall right into place.
I told my kids last week before the IPO came out to watch and learn and they did, I still don’t know exactly why this particular game is being played–yet, but I‘m sure we’ll know specifics soon enough. My kids were shocked, once again, that I am apparently some sort of fortune teller.
lukerw
Posted on May 23, 2012 at 12:22pmWithout proof that Advertisers receive a Benefit… the Stock is WorthLess!
Report Post »HorseCrazy
Posted on May 23, 2012 at 11:56amI have a facebook account for cheap easy contact with relatives over seas and across the country. I wouldn’t have touched this stock ever and recommended to my non facebook using friends the same, do not buy. they cannot even guarantee not getting malware or a virus when you click on an ad or basically anything, why would anyone me included pay to advertise my business on there if everyone is afraid to click on a link to a company you are interested in? stupid they cannot even get the pedophiles off of there. way to go mark z I begrudge you none of this money. fools and their money are easily departed anybody that thought this was a good idea should have looked at how well myspace played out
Report Post »jcizarter
Posted on May 30, 2012 at 8:08amYou are correct, I have no activity on FB ever. BearRack O. promoted this stock and he should be brought up on charges for his Pump and Dump Scam.
Report Post »And yet his Lehman Bros. were not found guilty of their Repo 105 Scam, go figure.
Anyone who thinks the stock market is not the ghetto for criminals is not staying abreast of what is happening.
RodT82721
Posted on May 23, 2012 at 11:12amWhat is a Facebook?
At 72 I have been burnt enough times to no longer believe anything someone tells me, or what I see on TV.
I never joined FB, because as near as I can figure out, it’s a web site that people can join for free, to tell all their FB friends all their secrets (real or imagined) and then pat each other on the back and become BFF. What fun!!!
Sort of like the liberal world of Washington DC.
My problem with this IPO was FB doesn’t produce anything but their members secrets. Then I know from experience, the only people that make out on an IPO are the insiders, and since I’m not inside anything, seemed to me to be a bad bet.
Morgan Stanley is a bank, they are in the business of making money, not helping out a bunch of
fools to get rich overnight. If it seems it’s to good to be true, it probably is!
So now the whining. The folks that expected to get rich off the other fools, are on the phone to their Congressman demanding they do something! More tax payer funded hearings???
The market will take care of Facebook, just like any other enterprise based on smoke and mirrors.
Report Post »krispy01
Posted on May 23, 2012 at 10:22amFacebook stock tanking….LIKE !
Report Post »Vickie Dhaene
Posted on May 23, 2012 at 9:28amI lost $130,000.00 through Morgan Stanley’s Stock fraud in 2003/2004.
Report Post »Once I heard that stockholders at Facebook were selling their personal shares I did not trust the handlers for this IPO. Also, most people know about their allegiance to Obummbler. That says enough.
turkey13
Posted on May 23, 2012 at 9:54amAfter I got burned on the stock market 15 years ago I have put everything in gold and silver – physical not a promise on paper that it is in some bank vault somewhere. I had to get two more safety deposit boxes. All my 3 sons have axcess in joint tennacy accounts. When the market crashed after 9/11, I was one of those that didn’t get ulcers. I’v got a lot that I bought when it fell back to the $450 range. Whenever it pulls back a couple of hundred bucke like now buy more. When it fell from $1,400 to alomost $1,000 I bought from those that paneked. I also only buy from a local Gold & Silver exchange.
Report Post »JRook
Posted on May 23, 2012 at 9:56amAh yes those ethical investment banker types reminding us once again the inherent integrity that pervades modern capitalism. I’m old enough to remember when companies and individuals actually put their community and the welfare of society above their ROI and their stuff.
Report Post »HorseCrazy
Posted on May 23, 2012 at 11:53amI lost almost 300k when wamu tanked. I feel your pain.
Report Post »AvengerK
Posted on May 23, 2012 at 12:12pmVICKIE…This offer was more hype than substance. Owning stock in Facebook is a “sexy” idea to the hipster “youth” crowd that thinks they know more than thou. Anyone with real understanding of IPOs and the business Facebook looked at the offer with caution and provisos. There was just too many questions flying around. It‘s not unsual for underwriters in a bond or an IPO to have stipulations to buy that’s not the problem. Without giving too much away…depending on the type of instrument you‘re buying in an IPO you have to be aware that you’ll take a profit quickly and sell off smartly…and that purchase is governed by what your needs are financially. This was hyped by the media and many inexperienced buyers jumped in without understanding what they were buying. The quick sell off hasn’t surprised me at all.
Report Post »As far as Morgan Stanley withholding negative outlook reports this will be determined by what‘s outlined in the underwriters agreements but it’s clearly another case of experienced investors knowing what they were buying while the inexperienced ones bought the hype.
moreteaplease
Posted on May 23, 2012 at 9:23amIs this something new? I thought this was common practice.
Report Post »soybomb315
Posted on May 23, 2012 at 8:29amfacebook is more of an idea than a company. 5 years from now, something better will come along to replace it and facebook will be worth zero.
This is the problem with business and finanial types, they dont understand the purpose of stocks (dividends). At the end of the day, stories like this turn more people into socialists and communists…
Report Post »poorrichard09
Posted on May 23, 2012 at 8:46amTo paraphrase P. T. Barnum: “There’s a Zucker born every minute”! It looks like Zuck could go down in investment history with Ponzi and Madoff. : D
Report Post »13th Imam
Posted on May 23, 2012 at 8:29amNobody was Forced to buy this bridge to nowhere. Yet the same Bawney Fwank/Cwis Dodd crowd that investigates The Rocket will find some smallfry to cook. Pewosi will make millions on her insider trading knowledge. When the Black Panther/ Obammy/DEMOCRAT Party cabal revolution starts, these three will be eliminated from existence.
Report Post »raderby
Posted on May 23, 2012 at 8:22ambuying virtual paper representing miniscule partial ownership in a company that makes nothing, produces nothing, except background noise and what everyone is doing today.
The only benefit to anyone by FlushBook’s existence is the government, since it can look up morons’ daily routine if the moron is so facetious to bother. Otherwise, it is simply another false ego booster to very lonely and frightened people.
Buy a piece of nothing? Price and deal of “nothing” a false flag by Morgan Stanley for that nothing? no thanks.
Report Post »johnjamison
Posted on May 23, 2012 at 10:22amThank you, I thought I was the only one that saw this. This is a non-exsistant company selling ghost stocks. Someone tell the emperor there is no fabric he’s naked already.
Report Post »hatchetjob
Posted on May 23, 2012 at 12:48pmRight on RADERBY, It’s like buying air. I enjoyed your comment about the gov. watching what the moron is doing on FB. Lol
Report Post »Rowgue
Posted on May 23, 2012 at 12:59pmNo you’re not the only one. People with an actual functioning brain understand the difference between a neat idea and a company that actually produces something tangible.
Facebook is nothing but a huge scam. It doesn‘t even provide a service that you couldn’t already accomplish without posting all your information publicly on the internet. What it does is give them a massive database of people’s information they can sell to marketers. That’s how they make their money.
Report Post »usa91773
Posted on May 23, 2012 at 8:09amTranslation: The fat cat insiders are ticked off they didn’t get to ripoff the public with over hype paper.
Report Post »Snowleopard {gallery of cat folks}
Posted on May 23, 2012 at 8:18amAll too true; most likely the administration of Obama also failed to make their desired bribe money in the transactions.
Report Post »salvawhoray
Posted on May 23, 2012 at 8:09amwhat is the thing called facebook that I keep hearing about?
Report Post »hatchetjob
Posted on May 23, 2012 at 12:51pmIt’s a place where mostly arrogant, narcissistic people visit to say what they had for lunch, how their last bowel movement went, etc. Basically a waste of precious time.
Report Post »Baddoggy
Posted on May 23, 2012 at 8:08amMove along, nothing to see here….The Obama bundlers got away again…
Report Post »Rajabear1
Posted on May 23, 2012 at 2:11pmSo true. Look at the players directly involved: Morgan Stanley, Goldman Sachs Group Inc. (GS) and JPMorgan Chase & Co. and then you got the Obama/NWO worshiping Zuckerberg/FB clan and you got yourself a good old fashioned scam–on many levels.
Report Post »I am no genius when it comes to ‘the market’, but I do have common sense. They produce nothing yet were hyped as the largest IPO ever??? Zuckerberg/FB clan has been in tight with the administration along with google from the word go. Chase is Obama‘s ’fav bank’ yet they are in the midst of their $2B ‘mistake’ (which if you’re paying attention, it is a set up for more ‘regulation’ at a minimum) and do we even have to talk about the criminals in Goldman that has impregnated our gov to the highest level?
TXPilot
Posted on May 23, 2012 at 8:08amWhat a surprise!…….the whole Facebook IPO hype was just a big pumped up scam. P.T. Barnum was right, there truly is a “sucker born every minute”…..
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