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.

‚ÄúFacebook changed the numbers ‚Äď they didn‚Äôt forecast their business right and they changed their numbers and told analysts,‚ÄĚ a person at one of Facebook‚Äôs 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.

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. 

‚ÄúThey are holding my money hostage,‚ÄĚ said¬†Sam Lesser,¬†who had put in a¬†$10,000 Facebook order from money he made in a small business he created. "It‚Äôs 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. John-117

    I still don't see how facebook is a money maker. An account is free. The facebook ads are mostly scams. Not to mention "adblock plus" hides all those facebook sponsor ads. The apps spam everyone in your friends list. I can't tell you how much it annoys me when I get a request for some stupid app. People are also getting tired of facebook posting their every move on the newsfeed without the users knowledge. Facebook needs to quit trying to bring everyone together so much. I don't need to see what videos my friends watch or what articles they read or what city and state their post was made from. Facebook needs to tone itself down and respect people's privacy

    May 23, 2012 at 4:31 pm | Report abuse |
  2. Mitch Tendler

    HA! Awesome....that's what you get when you think you are invincible!

    May 23, 2012 at 4:32 pm | Report abuse |
  3. RetiredVet

    Only sheeple would invest in this crap. I hope they all get burned for investing in this.

    May 23, 2012 at 4:32 pm | Report abuse |
  4. retphxfire

    I don't buy stock and I'm no expert on investment, but even I could recognize that Facebook is becoming old school. Remember Myspace and other social networks? When the next guy came along, poof! Facebook will be replaced by the next new idea/improvement on the old ideas, just like they replaced the old guard. I haven't looked at my Facebook page in weeks, it's lost its luster. I can do the same 'stuff' without the invasion of privacy that is Facebook using other electronic sources. I think any criminal acts should be prosecuted to the full extent of white collar punishment, time they were investigaed and there is a change in the 'no oversight' policy of the previous admin.

    May 23, 2012 at 4:33 pm | Report abuse |
  5. boyamidumb

    Once again the manipulative bankers and wall street thieves use the greed of the average idiot on the street to make even more money. In the future why don't you fools just mail them a check instead of making it go through the process of pretending you have a chance. It's like the lottery folks, they will let one of you win once in a while to keep the other suckers on the hook.

    May 23, 2012 at 4:34 pm | Report abuse |
  6. Begin American Spring

    The Commodity Futures Trading Commission (CFTC) is currently headed by former Goldman Sachs executive, Gary Gensler.

    May 23, 2012 at 4:39 pm | Report abuse |
    • Begin American Spring

      see revolving door and regulatory capture. note how many examples are american? what is it about our system that makes it so easily corruptable to jewish banksters? why is our government failing to do its job? and where are the people that are supposed to be protecting us?

      May 23, 2012 at 4:41 pm | Report abuse |
  7. Gale

    Why is anybody surprised! Can you say Winkleman Brothers. Nothing is as it seems, Wall Street lemmings!

    May 23, 2012 at 4:40 pm | Report abuse |
  8. St Xavier

    When will you people learn, it's all about BIG BUSINESS an the BANKS I would not be surprised it Mitt Romney is behind it all.

    May 23, 2012 at 4:41 pm | Report abuse |
    • Thewholetruth

      Nah, I think it's more like the "Prezzie of the United Steezy" puppet master and private hedge fund owner George Sorros

      May 23, 2012 at 5:07 pm | Report abuse |
  9. Jeff Frank (R-Ohio) "Right Wing Insanity"

    I think it's now safe to say, the getting something for nothing days are slowly comming to a close. It will still happen from time to time, and tomorrow, there will be yet another "hard to prove wrong", Ponzi scheme, con (confidence) game, that's going on to rip off the unsuspecting citizen. Maybe after it's all said and done, Mr. Zuckerbergs tidy whiteez will have a few new tire tracks.
    I enjoy seeing people make good profits for all thier hard work. Especially low income individuals toiling at a new business startup with thier own creativity. But those that make obscene profits by "using" people for pure gain with little or nothing in return.

    May 23, 2012 at 4:43 pm | Report abuse |
  10. S4LK1N

    although i understand facebook's fault in this story since they over valued it. the true fault is goes to the banks. they found out that they over valued and instead of calling facebook out. they decided to tell all their investors to back off. that is called insider trading and is against the law. every major bank should have gone under in 2008 but instead, washington bailed them out to continue this melarchey. im switching to a local credit union asap. ive had enough. everyone do the same and stop giving them your money. they dont care about you... they care about their bottom line.

    May 23, 2012 at 4:47 pm | Report abuse |
  11. Jim_34

    Facebook is worth something. Maybe not 100 billion but it's not worthless either.

    May 23, 2012 at 4:48 pm | Report abuse |
  12. Artanis

    An 11 year old with a company successful enough for him/her to invest $10,000? And later write to the New York Post complaining about it?

    May 23, 2012 at 4:49 pm | Report abuse |
  13. Facebook Zucks

    Facebook defended themselves on Wednesday saying they "believe the lawsuit is without merit and will defend ourselves vigorously."

    Of course they will defend themselves vigorously, and thanks to the ridiculous number of billions of dollars raised in their IPO, their defense will be funded by the plaintiffs.

    May 23, 2012 at 4:54 pm | Report abuse |
  14. Emily l. Perez

    Gee... Wonder what the Winklevoss brothers are thinking right now???

    May 23, 2012 at 4:56 pm | Report abuse |
  15. Jeff Frank (R-Ohio) "Right Wing Insanity"

    Oh my, sorry, I didn't finish my sentence from my last post.
    But those that make obscene profits by ‚Äúusing‚ÄĚ people for pure gain with little or nothing in return, I have no use for.
    I lost $$$$$$ of dollars in 2007- 2008, to aggressive companies with lucrative returns. I'm still invested partially in these funds today, only because they were scutinized by well enough by analyst over several years. And they have been on the rebound, but not as good as this administration has led anyone to believe.

    May 23, 2012 at 5:01 pm | Report abuse |
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