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. kdvr2000

    Well did not everyone say that Facebook IPO was over priced and was about 100 times earnings when most companies are about 10 times earnings. Everything I heard and read said the stock was more about low to mid $20's range if that and it looks like that is where it is going. Looks like no one listened to the actual people that said it was over priced and they were not going to buy it atleast for the first month to see what happens. The stock market is a risk, how can you sue or take someone to court for a risk you know exist, hmmmm....so can I go sue GM or an auto maker for my car that devalues and is not an investment like people are doing with houses, Come on people life is not perfect get over it, you lost money on this stock and everyone knew it was over priced you were just stupid enough to purchase it.

    May 23, 2012 at 3:42 pm | Report abuse |
  2. Alicia

    Say, goodbye FB.

    May 23, 2012 at 3:45 pm | Report abuse |
  3. mb2010a

    Anyone who bought FB and is selling now, is a fool. Just keep what you got and wait awhile...

    May 23, 2012 at 3:45 pm | Report abuse |
    • thedude10``

      More like anybody who bought facebook is a fool.

      May 23, 2012 at 3:53 pm | Report abuse |
    • Vinny

      @ mb2010a ...Indeed. That stock is going to make money for those who don't panic. (A la Google). A friend of mine sold his Google stock when it was under $100....for a loss. He listened to all the numbnuts on Bloomberg and CNBC who said it wasn't worth more than $14/share....go look at it now. Over $600/share and lawsuits coming out its butthole. The fact is, Zuck could announce a new feature/revenue source a week from now...then all these fools will be eating crow.

      May 23, 2012 at 3:56 pm | Report abuse |
  4. john matthew

    i cant beleive the difference in news storys between FOX NEWS and cnn. why isnt cnn playing some of the largest RIPOFF OF TAX PAYER DOLLARS IN AMERICAN HISTORY! i mean these arm some of the bigggest politics story's EVER.

    May 23, 2012 at 3:45 pm | Report abuse |
    • Kanagi

      It now is completely clear, you John are one of those misinformed Faux News watchers.

      May 23, 2012 at 4:09 pm | Report abuse |
  5. Freedom524

    He will be hitting his "Like" button

    May 23, 2012 at 3:46 pm | Report abuse |
  6. Bob

    Well you win some and lose you some. When you lose some, find a way to sue someone.

    May 23, 2012 at 3:47 pm | Report abuse |
  7. Broggyr

    Wrong story, dude.

    May 23, 2012 at 3:47 pm | Report abuse |
  8. thedude10``

    Anybody with an ounce of brain power knew this was a bad buy. The whole thing is a joke and anybody dumb enough to get caught up in buying this piece of crap investment deserves to lose their money haha

    May 23, 2012 at 3:51 pm | Report abuse |
  9. mgee

    eye guess zuk has really unfriended all of us, except his closest bankers. no wonder he feels the need to leave the country......QUICKLY!!!

    May 23, 2012 at 3:52 pm | Report abuse |
  10. CS Madison

    Time to break out the wet noodle that is Dodd-Frank and punish those Wall Street Bankers with a serious wrist slapping, followed by bonuses for all!!

    May 23, 2012 at 3:53 pm | Report abuse |
  11. PDXRains

    This is how it works. Everyone who makes it big on wall street swindles, cheats, has inside info, etc... No such thing as an honest buck on the stock market.

    May 23, 2012 at 3:53 pm | Report abuse |
  12. PorkNBeans

    Hype, hype, hype.
    Hang on to your facebook shares, folks.
    Don't let the banks fool you into selling.

    May 23, 2012 at 3:53 pm | Report abuse |
  13. David in NC

    It is easy to tell that you are not very skilled at investing. Both companies make their money off of advertising. These are two entirely different types of companies. Google is a search engine whereas FB is a social network. Billions of people use Google each day where only millions use FB on a daily basis. If you have X amount of dollars to put into advetising, which company would you choose? This is a no brainer. Of cource you would choose Google. FB will never reach $100 a share, unless they can come up with a new way to generate income.

    May 23, 2012 at 3:53 pm | Report abuse |
  14. Sabrina

    I think that some of Wall Street, along with select bankers and inside circles of investors planned this outcome. Who talked?? Mark Zuck. you should have been watching your back a little more closely. NOTE to Zuck: not everyone is happy to see you as among the youngest, richest, and ambitious power dealers in the world. As "John" put it: "
    well..when the CEO shows up on Wallstreet in a hoodie....the wolves will see a big opportunity.." Sadly, this maybe true. I liked the fact that you "rocked" the hoodie style, however, it Could Have made you seem weak to the Wolves waiting for any chance to discredit you. REMEMBER D.S.K. Call and speak with Strauss-Khan and maybe he will discuss his enemies and how one tethered string can cause the Wolves to tear at it Until everything you have unravels. Be Safe Mark Z., fight back but get some people around you who cares about YOU!

    May 23, 2012 at 3:55 pm | Report abuse |
  15. Glenn

    Come on now, I'm not even an investment pro and I knew that Face Book was over valued. There's no way I would have bought that IPO.

    May 23, 2012 at 3:55 pm | Report abuse |
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