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. D'oh!

    "Looks like I picked the wrong week to take my honeymoon." -overheard from MZ

    May 23, 2012 at 5:06 pm | Report abuse |
  2. purplehaze

    Suckers, I can't believe they fell for it. What a country! – Mark Zuckerberg

    May 23, 2012 at 5:11 pm | Report abuse |
  3. rockfish

    Now I see why the other guy left the country, he saw this coming, and he didn't want to pay taxes, crooked or smart?

    May 23, 2012 at 5:14 pm | Report abuse |
  4. Mecca

    America, you've been Punkd!

    May 23, 2012 at 5:16 pm | Report abuse |
  5. Mecca

    Next time you fools should just play pick six at the track or the lottery, if you want to throw your money away..

    May 23, 2012 at 5:19 pm | Report abuse |
    • across12

      The stock will settle somewhere around $11, in fact its real value.

      May 23, 2012 at 6:37 pm | Report abuse |
  6. CraigV

    The headline should be "Facebook does a faceplant"

    May 23, 2012 at 5:32 pm | Report abuse |
    • Derick Benoit

      Or...They got zuckered in

      May 23, 2012 at 6:32 pm | Report abuse |
    • Really?

      Right on brother. Faceplant it is.

      May 23, 2012 at 7:27 pm | Report abuse |
  7. admin123

    I blame gay marriage. Oh, and Bush. He had a dirty hand in this somewhere.

    May 23, 2012 at 5:35 pm | Report abuse |
    • Jerry


      May 23, 2012 at 6:18 pm | Report abuse |
    • pastmorm

      I blame breeders and the fact that they are over-populating the earth.

      May 23, 2012 at 7:28 pm | Report abuse |
  8. jamplayground

    I think anyone investing in anything should take full responsibility of the risks inherent in all investments, and not blame or try to profit off of a law suit against the company in question. It's not like FB is going to go bankrupt. Wait it out. And hey, at least the 99% can participate now instead of only the 1% who got in on the IPO.

    May 23, 2012 at 5:53 pm | Report abuse |
    • John Holmes

      Problem is the 1% told their other 1% jew friends to short it immediately because the revune numbers were a lie.

      May 23, 2012 at 6:28 pm | Report abuse |
  9. weirdracin

    ITs easy to overvalue Facebook, when you base 81% of it being Virtual Data from Virtual ADS!
    They lost GM just before the IPO, right there was 10mil of their future years earning out the door.
    If all the ad clients left FaceBook, it would wonly be worth 19% of what they said for the IPO.
    SO they really over Valued it.

    May 23, 2012 at 5:55 pm | Report abuse |
  10. Allan Robinson

    Cannot help but wonder, if we cannot trust the powers-that-be on our social networks, what lingering name does that leave of the networks [Facebook being that network in this case] ? If this proves to be a botched issue, there is no doubt i will terminate my facebook account. Why? It is a sad day when the very network you have come to respect and understand, intentionally falsifies it's very existence and more so, where it is the very sight my grandchildren use, makes it a bitter pill to swallow.

    May 23, 2012 at 6:00 pm | Report abuse |
  11. abudum

    This should be no surprise. Local talk show host all over talked about facebook book being over rated way before these Johnny come lately national news media. CNBC, one of the biggies, did do a survey and found hardly anyone pays attention to the ads on facebook. Most people are there to gossip, look at photos and make comments. I have even found myself clicking off the ads because they look like they are taking up space.

    May 23, 2012 at 6:05 pm | Report abuse |
    • fbker

      Facebook has ads?

      May 23, 2012 at 7:10 pm | Report abuse |
    • abudum

      GM recently confirmed it has decided to pull its $10 million annual ad campaign from Facebook. The automaker typically spends about $40 million per year getting its brand onto Facebook, The Wall Street Journal explained, but the company will continue to pay the difference for management of its Facebook pages and content. The company made its decision after the marketing department realized that the ads weren’t as effective as expected.

      May 23, 2012 at 8:00 pm | Report abuse |
  12. across12

    Zack will go FaceLess soon and start his new living somewhere in eastern China with his precious goony. He might turn into the new Dalai Lama crap.

    May 23, 2012 at 6:35 pm | Report abuse |
  13. Tim R.

    The true value of the stock at the IPO price should have been $12-$14, but underwriters tried to make a little more money. The underwriters should go were Bernie madoff is.

    May 23, 2012 at 6:38 pm | Report abuse |
  14. across12

    Go FaceLess Zack.....ruuuunnnnnnnnnnnnnn in the woods boy.

    May 23, 2012 at 6:39 pm | Report abuse |
  15. Arran Webb

    Zuck got taken for a ride. Sure he made a billion dollars but I think he has a moral directive and in this case the bankers came in and made the call. facebook should have given every member of Facebook a free single piece of stock. And kept some integrity to the concept of online community. Facebook is now doomed. Those fickle 900 million hate nothing more than being used.

    May 23, 2012 at 6:40 pm | Report abuse |
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