Oh, Zuck: Facebook's bumpy start just got a little worse
May 23rd, 2012
11:55 AM ET

Oh, Zuck: Facebook's bumpy start just got a little worse

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.

[tweet https://twitter.com/SallieKrawcheck/status/205090084373008384%5D

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."

soundoff (772 Responses)
  1. James

    "Did some people get a heads-up Facebook's IPO wasn't what it seemed?" I didn't know we needed detail analysis to realize the Facebook stock was valueless! Most of the active users on Facebook are teenagers and people who thinks too highly of themselves. This is a company that make what? That's right, nothing. They make no actual product, nor do they make any contribution to any actual work like Google. I can't honestly recall a single ad on Facebook ever. This is one stock that you won't need much analysis to know it's going to be worth nothing soon. It's just much hype, for the rich to get some quick money. Trust me, you don't need any "heads-up" to know the Facebook stock is going to fail.

    May 23, 2012 at 12:58 pm | Report abuse |
  2. MobiusEight

    So they bought into something that is only valuable as long as it's a popular internet trend? HAH. HAHA. These people deserve to get screwed. Idiots.

    May 23, 2012 at 12:58 pm | Report abuse |
  3. gregingso

    How anyone could believe FB is a 100 billion $ company (over 100 times earnings) is beyond me. Eight times more valuable than Apple who is selling millions of I-phones, apps, computers etc? In what universe does that make sense. Any individual investor who bought FB on the first day is a fool who should expect to be parted from their money. To try and blame all of that foolishness on a the basis that the underwriter told selective clients that earnings might be lower than expected is a REAL stretch. First rule of investing is do your own due diligence. Even if FB were to come in with higher than expected earnings next year (doubtful) paying 100 billion for at best a $20 billion company guarantees that you will lose your money and the bottom line is anyone who bought this stock DESERVES TO LOSE MONEY ON IT. Too bad, so sad, get over it and leave the courts out of it.

    May 23, 2012 at 12:58 pm | Report abuse |
  4. Failure

    "SCARY AND HUGE SHOCKWAVE..... SCAMMED". I heard dozens of people lost millions on FACEBOOK IPO. It got worst as it people predicted it would hit 45 or higher. It went plummet to dead cat.


    May 23, 2012 at 12:59 pm | Report abuse |
  5. Big_D

    And the GOP wanted to put Social Security in this system?

    May 23, 2012 at 12:59 pm | Report abuse |
    • montyross

      nobody from GOP invested in FB

      May 23, 2012 at 4:39 pm | Report abuse |
  6. Devin D

    Umm..Did that artical say an 11 year old had a small business and put in $10,000 worth of shares? I don't think that's true..

    May 23, 2012 at 12:59 pm | Report abuse |
    • s

      no, it's badly written, but sam lessler and the 11 year old are two different ppl.

      May 23, 2012 at 1:05 pm | Report abuse |
    • Sagian

      Yes, it really is an 11-year-old. Follow the link in the article.

      May 23, 2012 at 1:05 pm | Report abuse |
    • matt

      a trader of 11 years... learn to read.

      May 23, 2012 at 1:08 pm | Report abuse |
  7. Alex

    Will Z declare bankruptcy?

    May 23, 2012 at 1:00 pm | Report abuse |
    • OvrHyped

      only moral bankruptcy

      May 23, 2012 at 1:05 pm | Report abuse |
  8. Dave

    Honestly, if those folks who were dumb enough to invest in facebook took the time to log into facebook, they would see that facebook is slowly dying. What was once new an exciting has now become a site where the same 5 people post nonsense about their everyday lives that no one cares about. And Facebook's model to make money on advertizing – come on people! We have all become so desensitized to advertizements on web-pages that we don't even see them anymore. I'd have a hard time believing that advertizes will pay Facebook big money for ads that no one looks at. Facebook stock is DOA – don't waste your money on it!

    May 23, 2012 at 1:00 pm | Report abuse |
    • BobbyBrick

      amen to that! Just last week there was a big article about the fact that nobody was clicking on the ads in FB. Let the stock settle for a month or so and then it'll be a good buy. Right now..I'll be staying away.

      May 23, 2012 at 1:09 pm | Report abuse |
  9. yup

    Its was a big scam from the start...its time to boycott Facebook....this site has brought nothing but problems across the board.

    May 23, 2012 at 1:00 pm | Report abuse |
  10. mark

    Were these investors dumb for throwing money at a stock that everyone (who has a brain) knew was overvalued simply because of the nature of Facebook's revenue stream? Absolutely.

    Should that let Facebook and the underwriters off the hook for insider trading and hiding Facebook's revenue information from the public? Absolutely not.

    All sides are in the wrong here. Facebook for starting the sham of an IPO in the first place, the banks for merrily agreeing with it and illegally hiding the information, and the dumb investors who bought into the media hype.

    May 23, 2012 at 1:00 pm | Report abuse |
    • Wonder

      Don't feel sorry for them

      May 23, 2012 at 1:03 pm | Report abuse |
    • George

      Well said 🙂

      May 23, 2012 at 1:09 pm | Report abuse |
  11. LouAZ

    Ha Ha Ha ! ! !
    Couldn't have happened to ma nicer more deserving group of people that make their living without doing any work.
    Next time try Las Vegas, same game, but at least you get a free drink from a pretty girl.

    May 23, 2012 at 1:00 pm | Report abuse |
  12. Fred

    Every ethnic group has thieves and murders. The Jewish people are not unique in that. Look at Muslim's for example. They have been trying to destroy the Jewish people off the face of the earth for centuries.

    May 23, 2012 at 1:01 pm | Report abuse |
    • Dirk

      And vice versa, Jews have been murdering Palestinians for decades. The Zionists don't consider the human beings – just #s on a page. Just don't hear that in the western media.

      May 23, 2012 at 3:24 pm | Report abuse |
    • Kanagi

      Thanks for that insightful posting Weinstien.

      May 23, 2012 at 4:22 pm | Report abuse |
    • Kanagi

      Thanks for the information Rabbi Weinstein.

      May 23, 2012 at 4:23 pm | Report abuse |
    • Kanagi

      Thanks for that insightful post Weinberg.

      May 23, 2012 at 4:25 pm | Report abuse |
    • Kanagi

      Great info Weinberg

      May 23, 2012 at 4:26 pm | Report abuse |
    • Drfun

      Fed does not know his history very well. Muslims allowed Christians, Jews and Hindu's to practice their faiths in the M.E. country's in the past. It was Muslim country's that inspired the European Renaissance after the Roman Catholic church had burned books and tortured innocent people with their Inquisition during the Middle Ages.

      May 23, 2012 at 6:17 pm | Report abuse |
  13. Mr.Data

    Never trust any company on NASDAQ. They are too often companies hgihly over valued, highly speculative, and highly unreliable for the long run. I'm not saying that Facebook isn't a good company worth investing in .. but it clearly isn't meeting the investors expectations at the current price point and probably is more accuraste to be a $20 stock

    May 23, 2012 at 1:01 pm | Report abuse |
  14. Patrick

    I have a couple of 'thoughts' on this:

    "A fool and his money are soon departed".
    (As my Dad many times said)........"Believe nothing of what you hear and 50% of what you read".
    (To paraphrase Ronald Reagan).............."Trust but VERIFY".

    In these Big Game Poker stakes, consider that fact that the "Market" wants to make money anyway they can............so they throw FB Zuck to the 'wolves' and stir up some volatility so the stock will go up and down and the 'money leeches' can steal from the investors. If I was a betting man, which I am not, I'd say that 'somebody' is trying to make a end run for FB and take it over right out of the hands of Zuck and his team.

    May 23, 2012 at 1:01 pm | Report abuse |
  15. yup

    I really hope we see him in cuffs 🙂

    May 23, 2012 at 1:01 pm | Report abuse |
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