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. What

    I wouldn't buy Facebook stock if it was $1/ stock it's just a ponzi scheme.

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

    Let the fingers point to fingers now! LOL

    May 23, 2012 at 1:02 pm | Report abuse |
  3. Ken

    I am not watching the jews.. I am watching the current administration take my money. Always gotta blame the Jews for your miseries... Don't cha? Pickup a newspaper or turn on a TV to learn who is destroying this world.

    May 23, 2012 at 1:02 pm | Report abuse |
    • the god of all lawyers

      Nice hate speech

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

      The banks acting badly? NO WAY!!!!!!!!!!!!!!!!!!!!!!!

      May 23, 2012 at 1:06 pm | Report abuse |
    • Chris

      If you honestly believe that reading a newspaper or watching TV will indicate to you any actual news you are so wrong. Party lines are also in the news media, whether conservative or liberal.

      May 23, 2012 at 1:10 pm | Report abuse |
    • whoelse

      who ELSE is destroying??

      May 23, 2012 at 1:10 pm | Report abuse |
  4. John D Hater

    I'm no expert but this always seemed like some bs to me!! You gamble and lose...YOU LOSE!!!

    May 23, 2012 at 1:02 pm | Report abuse |
  5. zoomzom

    That was a very smart move by the Zuck to sell stocks at this time, he knew the company was at the peak of the curve and will have to go down the slope, it was last chance to make money before the whole company looses or have to be sold/liquidated.

    May 23, 2012 at 1:03 pm | Report abuse |
  6. Xman

    lol. Zuckerberg made his money so long before the stock that I doubt it would force him to eat or live any less better than he does today regardless of the price of his imaginary cat video stock.

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

      "any less better"? Where did you learn English, in Juarez?

      May 23, 2012 at 2:23 pm | Report abuse |
  7. Greg

    Serves them right. Facebook is a total waste of time and deserves to fall inot oblivion.

    May 23, 2012 at 1:03 pm | Report abuse |
  8. denman838

    I have ZERO sympathy for anyone who wanted to buy & sell on day-one. that's gambling, pure & simple. However, I do think that when you look past the hype (and I'll bet you that 99% of invetors did not do that), and look at the actual numbers (users, revenue, etc), this could actually be a good long term investment. But just like with any other investment, there's never a guarantee.

    May 23, 2012 at 1:04 pm | Report abuse |
  9. calvin

    Of course nobody did anything wrong... it was all legally done, LOL !!!!!! Hey, Mark, you should have NEVER even thought about venturing into the world of Wall St. You're learning your lesson the hard way. You might be a very smart hi-tech 28 yr old, but you're an easy target in the financial world, you're too young for that. Good luck....

    May 23, 2012 at 1:04 pm | Report abuse |
  10. yup

    Wall Street had this Boy set up from the start, when are the crooks of wall Street going to be put away.

    May 23, 2012 at 1:04 pm | Report abuse |
  11. Norm

    I've always thought the name "Face" book was stupid from the very beginning.
    Face....book????? LOL....how stupid is that.
    You don't even get any face when you sign up...........
    No book either.............

    May 23, 2012 at 1:04 pm | Report abuse |
  12. Den Huff

    What about exposing facebook for the fraudulant capture of people's GOVERNMENT ISSUED ID. It clearly says on mine to not copy it, yet when facebook deems your page "questionable" they will DEMAND a copy of government issued ID with a photo in order to re-instate your facebook page. Even after compling, several hundred people have stated that they got a generated email stating their facebook page was closed, decision final, as the ID was not suffiecent evidence of proof of ID for the account. Where are these people's government issued ID copies?? What is facebook doing with hundreds of photo copied passports, drivers licence? Why is that legal to even ask for it or "else you get banned"?

    May 23, 2012 at 1:04 pm | Report abuse |
  13. CHEECH

    Ahhhhh Karma!!!!! Enjoy Mark, could not have happen to a better man!!!!!

    May 23, 2012 at 1:05 pm | Report abuse |
  14. babakazoo

    I think you can now conclude.... FB sux.

    Where is your hoodie now guru?

    May 23, 2012 at 1:06 pm | Report abuse |
  15. jrh512

    FB's stock will be trading in the single digits by the end of the summer. Sure it's a great company and they have close to a billion people using their services.

    This whole IPO reminds me of a classic MLM. At the end of the day, someone has to sell a box of soap to make any money.

    May 23, 2012 at 1:06 pm | Report abuse |
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