To say its been a rough ride for Facebook's IPO would be an understatement.
And as the social media giant edges toward the close of its first week of trading, questions are swirling about the company's valuation, its profitability and now allegations that full details of the stock's likely value were shared with only a select group of people.
Did some people get a heads-up Facebook's IPO wasn't what it seemed?
Regulators are now looking into the possibility that Facebook's Wall Street investment banks may have tipped off some clients that Facebook wasn't necessarily a great buy or worth the hype it was receiving, according to reports Wednesday from Reuters and several other news organizations.
“Facebook changed the numbers – they didn’t forecast their business right and they changed their numbers and told analysts,” a person at one of Facebook’s banks told Reuters.
Overheard on CNN.com 'I saw this one coming from a mile away'
The big question is: Did certain privileged customers receive information about the Facebook offering that you as an individual investor might not have?
Rick Ketchum, head of the Financial Industry Regulatory Authority, an independent regulatory body, acknowledged in an article from Reuters that a Morgan Stanley analyst reduced his revenue projections for Facebook shortly before the offering and shared the information with institutional investors.
And now Facebook shareholders have filed a lawsuit against the social network, CEO Mark Zuckerberg and a number of banks, alleging that crucial information was concealed ahead of Facebook's IPO. The lawsuit, filed in the U.S. District Court in Manhattan on Wednesday morning, charges the defendants with failing to disclose in the critical days leading up to Friday's initial public offering "a severe and pronounced reduction."
Facebook defended themselves on Wednesday saying they "believe the lawsuit is without merit and will defend ourselves vigorously."
The report, and now the lawsuit, raises questions about whether Morgan Stanley, one of the underwriter companies that handled Facebook's IPO, or other banks knowingly offered certain investors privileged information that should have been made public. Other underwriters targeted by the lawsuit include Barclays Capital, Goldman Sachs, JPMorgan Chase and Merrill Lynch, a unit of Bank of America.
It is possible that Morgan Stanley may have signed off on a price that was too high or agreed to sell too many shares in the deal, CNNMoney.com reports. Then, Morgan Stanley analysts are alleged to have told certain people they had a negative assessment of the social network's offering.
"If true, the allegations are a matter of regulatory concern to FINRA and the [Securities and Exchange Commission]," Ketchum said in a statement via a spokeswoman.
The New York Times reported Morgan Stanley did more than just quietly share a negative outlook; they actually "held conference calls to update their banks' analysts on business."
"Analysts at Morgan Stanley and other firms soon started advising clients to dial back their expectations," the article says. "One prospective buyer was told that second-quarter revenue could be 5 percent lower than the bank’s earlier estimates."
Sallie Krawcheck, Bank of America's former head of wealth management, took to Twitter to share her outrage about the allegations.
The FB IPO selective disclosure stories just keep getting worse. If true, an absolute outrage. Come on, Wall St!!— Sallie Krawcheck (@SallieKrawcheck) May 23, 2012
The FB IPO selective disclosure stories just keep getting worse. If true, an absolute outrage. Come on, Wall St!!
A glitch leaves investors not knowing if they have Facebook stock
Facebook's debut on the market was hindered by early confusion when trading was delayed by two hours after what Nasdaq called a "technical error."
"People didn't know where their orders stood, and it became a big guessing game," one trader, who had put in an order to buy Facebook shares ahead of the opening bell, told CNNMoney.com. "Nasdaq couldn't handle it - they blew it."
The trader said he didn't receive a report of how many shares he bought and how much he paid for them until three hours after his order was executed. Typically, that report is transmitted instantaneously, he said.
Facebook IPO: What went wrong?
Others were left even further in the dark. A frustrated 11-year-old investor, who in many ways represents the most basic frustration for individual investors, told the New York Post that three days after the public debut, he had absolutely no idea if he even had gotten shares of the company.
“They are holding my money hostage,” said Sam Lesser, who had put in a $10,000 Facebook order from money he made in a small business he created. "It’s really disappointing, because we could have made money on this."
To prevent a repeat of Facebook's botched opening, Nasdaq has changed its process to no longer accept order modifications once the final calculation has begun.
Stock disappointing many - unless you're a flipper
If you bought Facebook hoping it would be a steady earner in the early days, you were certainly out of luck.
While the Facebook IPO was one of the most highly anticipated IPOs in recent memory, setting a record for first-day trading volume, it's also been quite a disappointment so far.
The stock is still down about 15 and has yet to post a truly positive trading session. On Friday the stock had a minute gain, but other than that, it hasn't done much to impress early investors.
That is, of course, unless you're someone looking to trade minute-by-minute or hour-by-hour in order to turn a real quick profit.
"It's a day trader's paradise right now," Douglas DePietro, managing director for sales trading and trading execution at Evercore Partners, told CNNMoney.com. "There's high volatility and high volume."
Why is it when investment banks provide misinformation about something's value and basically defraud (or steal) millions from people, its not even considered a crime? Its just going to be a fine? This is what is wrong with Wall Street and why no one in the entire world trusts them. Its not trading stocks, its gambling bets and the house stacks the odds so the wealthy won't lose. Regulate these crooks and make them carry the regs with them at all times.
Insider information shared only with the wealthy? I'm shocked and dismayed.
FB a scam from the start. Always more suckers.
As someone who works 60 hours a week, I can tell you that I my heart breaks for all these poor, poor investors who were misguided into buying essentially worthless stock. Does anyone know if there's some sort of relief fund for these unfortunate souls? I'd certainly contribute.
Why should there be? If you go to Vegas and lose do they have a "relief fund" for you? No, the stock market has always been and will always be a big gamble. Anyone with a shred of sense should of known that FB is/was WAY overvalued. It didin't take a rocket scientist to see that.....
Just to let people know, I have managed to live my life without facebook, never had an account, never wanted one. My life is about my family and friends, and I talk to them in person.
Completely agree! Don't have FB, and my life is much better with out it.
Ahahahaha! I really hate Facebook.
As a user of Facebook I can't help but notice how just few of my friends are using it. Facebook lacks innovation. It's a boring cite. Facebook needs to merge with YouTube to gain the value it is looking for. Facebook is worth as much as MySpace and unfortunately MySpace is not worth a thing.
Someone should have told Justin TImberlake before he bought it. Fool! HA! btw, you do realize youtube is owned by google, you don't just go to another company and merge with it without the owners permission. See, I only play dumb sometimes.
Merging FB with YouTube isn't going to happen since YouTube is owned by Google.
You're right about there being MUCH less traffic by individuls as opposed to corporate and organization pages. I don't think they suffered from a lack of innovation but too much innovation. They took a very popular product and, even though nobody wanted it, they kept tweaking and changing it until it became not so very popular. Maybe they should have talked to CocaCola to see how it worked out for them?
i'm not understanding. everyone on the planet knows facebook is going by the dinosaur. the stock offering was meant to make some big bucks for an exclusive list of people. who didn't know that? ok, except for the maroons suing.
This is just more of the same old thing from wall street. The little investors have little to no chance in working within the system. The regulators are part of those being regulated. Wall street for normal investors is a lost cause and has been for a number of years.
I'm so glad I don't Fakebook and never bought into the hype of this IPO. Regardless, if investors were privy to a lower valuation, they are now upset they have made no money since it was released less than a week ago.
What did people expect? A company valued higher than Microsoft and Apple because of a website? There's no innovation or diversity in FB. FB is not just a division of a larger company. No. IT IS A WEBSITE, PEOPLE. $40 IPO? Get real. Obvious pump and dump for their insiders to finally jump out rich.
Just a technical point: FB is NOT valued more than MS or Apple.
The wealthy got special treatment ? No way ! Just could not happen ! Right ?
you know, this kind of joke is getting really old because it is told almost every day. The joking is covering up a very serious issue. People are pumping money into their 401Ks mandated by their employeers in lieu of pensions. We find that the system it totally rigged.
I know how that 11 year old kid feels. Like, I bought my son a yearbook for his senior year in high school, but they never sent me a receipt. I got a card saying I only had like a month left to pay for the book, but I did pay for it. My credit card shows it being charged, and when I call the company they say yes, they do have my order and it has been paid for. But what happens on the last day of school and there's no yearbook? Do I call the school? Do I call Jostens? What a nightmare! Wait, what was this all about again? Facebook? No..... meatball sandwiches! Got it!
My condolences to all you zuckers out there that purchased such a volitile stock on such lofty speculation.
The users made out like bandits. The clients? Well, they paid a handsome price for thier "free Facebook page". But in the real world? Nothing is "free". Somebody had to pay for it.
Zuck won't be using me....ever. I work for a living. Just ask anybody that knows me. My account with Facebook has "TERMINATED" months ago!
If the rolls of rich man, poor man, were reversed? Do you think the girl he's married to now, would of had anything to do with him?
You can have a FB account and yet not buy the stock.
Funny how Wall Street is under scrutiny these days, and as such they are finding dirt at every level unless you are one of them. Regulate, regulate, regulate, they are all a bunch of crooks.
Did any of us peons get the secret call about FB stock? How about the Martha Stewart/Imclone scandal? Any of you get a call from your broker the day before Imclone's stock was about to tank like Martha Stewart did? Probably not. Sadly, if you are not plugged into Wall Street, you might as well go to Atlantic City or Vegas with your hard earned cash. This story is no surprise to me.
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