Facebook, the investment bank Morgan Stanley and stock exchange operator Nasdaq OMX are targets of several investigations and lawsuits initiated by U.S. financial authorities and investors on how the initial public offering of social networking was run. The IPO and listing of Facebook attracted the attention of both U.S. authority who oversees brokerage houses, Financial Industry Regulatory Authority, and the U.S. Securities and Exchange Commission. Representatives of both institutions have not indicated if they will start investigations, but said that they carefully analyze the situation, according to Reuters.
Massachusetts authorities have issued a subpoena to Morgan Stanley to present new information on discussions between analysts and investors before the IPO of Facebook. A law firm in Los Angeles initiated a lawsuit against Facebook, Morgan Stanley and other underwriters of the IPO, accusing companies of hiding key information. The company invited all investors who consider themselves harmed after the Facebook listing to join the lawsuit. An investor initiated a lawsuit against the New York stock exchange operator Nasdaq OMX, inviting to join in all investors who lost money because of delays and errors in Nasdaq systems during the development of initial public offering and in the first hours after Facebook listing.
Facebook shares closed Tuesday at Nasdaq down 8.9%, to 31 dollars, after dropping Monday 11%. Thus, investors who bought shares in the IPO have lost 18% of money invested in the first three sessions of Facebook trading. Those who bought Facebook shares at $45, the peak recorded in Friday’s trading debut of Facebook, so far lost 31% of investment.
IPO was an absolute success for Facebook and ‘old’ shareholders who invested early in the development of the company. The network has attracted $16 billion through IPO, and managed to reach at the start a market capitalization of over $100 billion. The offer was organized by 33 agents, led by investment bank Morgan Stanley. Sources close to the situation said later that Facebook has recommended to some of the analysts affiliated to the 33 agents before the IPO to reduce the estimates given to investors. The new estimates were sent to large institutional investors, but retail investors remained “in the dark”.
JPMorgan Chase, Goldman Sachs and Bank of America Merrill Lynch, also among the leading underwriters of the offer have revised the estimates on Facebook shortly before the listing, said sources familiar with the matter. Big banks have reduced their estimates of income and company profits for both the second quarter of 2012, and the whole year, according to data obtained by Reuters.
Reply