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. FREEDOM1964

    The guy just looks like a weasel.

    May 23, 2012 at 1:27 pm | Report abuse |
  2. Gregory Faith

    I don't care about bla bla bla, was there insider trading or not and if so I want my money back thatnk you! Memeber of the lawsuit!

    May 23, 2012 at 1:27 pm | Report abuse |
    • columbus

      Sorry dude, if you go to a casino and put your money in a slot machine, and you don't win should the casino give you your money back? Does the casino rig things in their favor? That's why they call it gambling!

      May 23, 2012 at 1:33 pm | Report abuse |
  3. Brad

    Write this down : The Yahoo Paradox : Commercializing a free website will destroy the reasons people liked it in the first place.

    May 23, 2012 at 1:28 pm | Report abuse |
  4. JAANC

    karma.. he screwed his best friend.. stole someone else's idea and sold his soul to the devil (government/cia) and now look..

    May 23, 2012 at 1:29 pm | Report abuse |
  5. Kenny

    This is Great news, maybe i should have invested only to get a payout

    May 23, 2012 at 1:29 pm | Report abuse |
  6. look around

    sorry you're not one of us.

    May 23, 2012 at 1:29 pm | Report abuse |
  7. MG

    This article is sufficient enough deem FB as unscruplous business practices. And as if JP Morgan needed to be in anymore HOT WATER...

    May 23, 2012 at 1:30 pm | Report abuse |
  8. Spunky Spumkmeir

    Who in their right mind ever thought this was a good investment? Firefox + Ad Blocker = NO ADS = No $$ stream for the owners. Get smart folks.

    May 23, 2012 at 1:30 pm | Report abuse |
    • Lolame

      not to mention the fake, duplicate and inactive accounts

      May 23, 2012 at 1:37 pm | Report abuse |
    • Terran18

      Start a facebook group to encourage people to use firefox + adblocker

      May 23, 2012 at 1:41 pm | Report abuse |
  9. The Writeswift Blog

    By going public, FB got sucked into corporate slavery rather than maintaining their off-beat independence as master of corporate minions. Now they are paying the price.

    May 23, 2012 at 1:30 pm | Report abuse |
  10. Bill Faulk

    Mark Zuckerberg sold 30 million shares at $37.58 per share
    Peter Thiel, Facebook's director managed to sell over 16 million shares at $37.58 per share.
    Accel Partners sold over 40 million shares at $37.58 per share
    It's now trading at about $32.00 per share.

    May 23, 2012 at 1:30 pm | Report abuse |
    • CJ

      If Zuckerberg sold 1.125 Billion worth of his shares right away that could indicate that he knew his stock was going to drop. When you think about it, where does their money come from? They have to make money in advertising and they are creating their own LinkedIn module call BranchOut.

      May 23, 2012 at 1:37 pm | Report abuse |
  11. Robert

    This episode exemplifies the friction between those in control, and the rest of us. In this case, even when we didn't fall for the hype, the system gamed us in the form of banksters concealing information and then even propping up the stock price with mega-purchases. One day, and that day will come, banksters will pay a steep, maybe ultimate price for the chaos the create.

    May 23, 2012 at 1:31 pm | Report abuse |
    • ectogestator

      Where do I click to opt out of your "us". I'm not you. You're you, and I'm glad.

      May 23, 2012 at 1:50 pm | Report abuse |
  12. suckerberg

    if the value of the stock keeps decreasing 10% a day, in few days it will be worth zero

    May 23, 2012 at 1:31 pm | Report abuse |
    • Not a Scholar

      Mathematically you are incorrect. If something is reduced by any percentage other than 100% it will never be 0. but I get your point.

      May 23, 2012 at 1:41 pm | Report abuse |

      Actually, if it decreased by 10% every day, it would never go down to zero

      May 23, 2012 at 1:42 pm | Report abuse |
  13. Valerie

    O WOW BIG SHOCK , LOL, NOT! and this is prolly why one of them left America with his millions..but any one could have told them, FB stocks not a good investment, every one who plays there is just waiting for a new program so we can mass exodus from FB to it. We dont like the way they are always changeing stuff and the pages arnt working right and its become a royal pain to even be in FB..and OMG we hate the time line BS....

    May 23, 2012 at 1:31 pm | Report abuse |
  14. Peter

    Oh, Zuck?

    I get it CNN. How naughty! Surprised no complaints from the goody goodies.

    May 23, 2012 at 1:32 pm | Report abuse |
  15. Eric the White

    Martha Stewart didn't get a call from her broker. She was sleeping with someone with inside info.
    Oddly enough, one of the guys I work with is a business analyst of sorts. When I asked him about Facebook's IPO he said "no. You'd be better off smoking crack. That company has no value."

    I should've learned how to short stocks. Could've made millions today!

    May 23, 2012 at 1:32 pm | Report abuse |
    • ectogestator

      That's what she went to jail for – sleeping with somebody. It's called beastiality, and she's the beast.

      May 23, 2012 at 1:52 pm | Report abuse |
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