As Facebook shares continued their slide, regulators launched investigations into whether privileged The Street insiders were cautioned to the company’s weakening financial projections, leading them to eschew the stock or dump shares just as buying was opened to the public. In case facebook has a case fraud they will probably get securities fraud lawyer.
Morgan Stanley, which led the Wall Street effort to bring the social network public, came under fire following reports that the bank had told some favored clients the bank was cutting its income guesstimates for Facebook. The lowered expectations came after the tech giant expressed caution in a public filing about its advertising sales on portable gadgets.
The legal issue raised could be “securities fraud — plain and simple,” said Ernest Badway, a securities lawyer in NY and New Jersey and a one-time enforcement lawyer at the U.S. SEC Commission. “You can not be putting out 2 sets of numbers.”
SEC Chairwoman Mary Schapiro said the agency will inspect “issues” into the bungled Facebook public offering. The Financial Industry Regulatory Authority, the Wall Street industry-funded watchdog, in addition has voiced concern, and Massachusetts stocks regulators have issued subpoenas for Morgan Stanley.
“If true, the allegations are a case of regulatory concern to FINRA and the SEC,” Rick Ketchum, the watchdog’s chairman and Manager, claimed in an emailed statement.
One major prescribed financier was informed of the lowered expectancies during Facebook’s IPO “roadshow,” in which Morgan Stanley and other underwriters appeared before mutual funds and other big investors to make the case to buy shares in advance of the public offering.
“I am pretty sure the gramps who acquired 10 shares of Facebook through her Schwab account failed to get that memo,” said a person familiar with the problem who declined to be named to preserve his business relationship with Wall St investment banks.
Facebook’s offering was one of the most hyped events on Wall St, and became the largest tech IPO in history. The company raised $16 billion by listing on the Naz Market in a move that valued the company at $104 bn., which is larger than American company stalwarts like McDonald’s Corp. And Amazon.com Inc.
But since the first few minutes of trading on the Nasdaq just one or two days ago, Facebook’s life as a public company has been tumultuous.
Facebook’s shares were delayed by two hours on its first day of trading, and investors whinged of glitches in confirming that trades even took place. Shares never finished the first day of trading with a giant surge, and have plunged 26 % since Fri..
Facebook’s stock lost $3.03 on Tues., or 9 %, closing at $31, down acutely from its IPO cost of $38.
Securities barristers asserted the IPO’s issues could invite suits from angry stockholders and others against their brokers, Nasdaq, Morgan Stanley and most likely even Facebook.
“It’s a disaster,” Badway recounted. “I just can’t believe they screwed up so badly.”
Facebook made no comment.
NDX has put aside more than $13 million to address potential claims against the exchange, related Credit Agricole Instruments researcher Rob Rutschow. He said there is worry that “Nasdaq has tainted its reputation with potential corporations looking to IPO, and that extra legal costs are possible.”
The legal backlash has started. On Tuesday, Maryland investor Phillip Goldberg sued the stock exchange in federal court in New York, accusing it of failing to timely execute trades, causing him and others to lose cash. The suit looks for class-action standing.
Regulators also are putting the trades and the Wall St players under perusal.
The Massachusetts Secretary of State, which manages the instruments industry in that state, issued subpoenas to Morgan Stanley regarding the bank’s analyst dialogues with “certain institutional investors about the cash prospects for Facebook” before last week’s IPO.
In Washington, SEC Chairwoman Schapiro said the agency wanted to examine issues raised by Facebook’s IPO.
“I think there is a lot of reason to trust in our markets and in the integrity of how they operate, but there are issues that we need to look at in particular with regard to Facebook,” Schapiro said.
Morgan Stanley protected its actions, saying it was “in observance of all applicable regulations.”
The bank added that “a heavy number of analysis researchers” in the syndicate of banks. Taking Facebook to market “reduced their earnings perspectives to reflect their estimate of the impact of the new information. These revised perspectives were considered in the pricing of the IPO.”
A few Facebook investors announced their trust in the stockmarket was shaken by their experiences.
Niels Hansen, a 40-year-old software engineer from Murrieta, Calif, said it took him several hours Fri. to determine whether his order for 100 shares at $42 had gone through.
He said all he could determine from his TD Ameritrade online account was that the order was “pending.” So Hansen placed a second order for 100 shares at $39. Turns out that both orders went through — and so far the value of his investment has lost $3,000. He’s held on to the shares.
“I didn't wish to get left out, so I ended up getting stuck,” he announced. “I kept hitting ‘cancel, cancel, ‘ nonetheless it wasn't able to cancel.”
TD Ameritrade said in a statement that a “small percentage” of its clients reported difficulty trading Facebook stock Friday.
Randy Wilk, 52, an estate property chief from Oakland, Calif, stated that he placed an order thru a broker for 230 shares but that it took four hours to learn the trade was executed at $42 a share. By that time, the stock’s price had fallen back to the opening price. Wilk stated that he sold the shares Tues. at a complete loss of approximately $2,500.
“This needed to be the most terrible IPO in history,” Wilk said. “It was the most miserable experience I have had as an investor. “.