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. ughh

    i can imagine how the honeymoon on. they have to work asap

    May 23, 2012 at 6:50 pm | Report abuse |
  2. pastmorm

    It's called KARMA. YOU get back THREE fold what you give out. zuck was a government pawn. It didn't work out and now facebook will fail because people will NOT be controlled by a stupid site!

    May 23, 2012 at 7:27 pm | Report abuse |
  3. Really?

    This all about fools believing there is really value in this dog of a company. Fools gold

    May 23, 2012 at 7:29 pm | Report abuse |
  4. zoomzom

    I hope facebook is not too large to fail or else we all will be footing the bill bailing them out, warning just in case.

    May 23, 2012 at 7:39 pm | Report abuse |
  5. Zman

    Facebook is going to be just like Myspace within a year or two. I don't know why people think it's different. It's not. It's just a fad.

    May 23, 2012 at 7:43 pm | Report abuse |
    • Parker

      Any halfwit can say that but myspace never had anywhere close to 900 million users. I'm sure Yahoo thought google was just a fad. WRONG. FB is not going anywhere

      May 23, 2012 at 8:03 pm | Report abuse |
    • Millenial Messenger

      If Zuckerberg were smart he'd market to the baby boomers and settle into an evergreen relationship with them. My parents love finding their old high school chums. Baby boomers are into it. Too bad he will never market it that way. He could stabilize the price at a more realistic value and build a catered AARP e-com marketplace, etc. He needs a better marketing team around him. Too many eggheads make a messy omlette.

      May 23, 2012 at 8:07 pm | Report abuse |
    • Arthurrrr

      wow- you are so wrong. you are neither a prophet nor very intelligent.

      May 23, 2012 at 8:23 pm | Report abuse |
    • Judy

      Yes. Case closed.

      May 23, 2012 at 9:13 pm | Report abuse |
    • Brian Berry(calmchessplayer)

      Oh Facebook just hiked the price before it went to the market then were like oops and told their major investors the true price. They probably thought they were at a Casino 🙂 Its a huge mistake but it will probably all buff out in the end.

      May 23, 2012 at 9:41 pm | Report abuse |
    • Alternatively

      Totally agree with that Zman! This company has all the substance of cotton candy! Avoid!

      May 23, 2012 at 10:24 pm | Report abuse |
  6. was it worth it

    thats what you get for renouncing US citizenship,

    May 23, 2012 at 7:53 pm | Report abuse |
  7. Penny Nickels

    I still have a Myspace account. I even use it from time to timel

    May 23, 2012 at 8:40 pm | Report abuse |
  8. calvin

    Zuck, my man, you should NEVER have ventured into the snake pit, AKA Wall Street. You're too young and they're going to eat you alive. Good luck dealing with all this.

    May 23, 2012 at 9:29 pm | Report abuse |
    • NEWK36

      Mr. Zuckerberg. What the hell is the matter with you? On the surface you have a good life. You seem smart, you have a beautiful bride. You let one of the seven deadly sins start gnawing on your beautiful castle. GREED has brought many a "good" person down. Everyone was concerned about whether or not you had a pre-nup. One thing for sure. You are letting GREED bring you down.

      May 24, 2012 at 1:05 am | Report abuse |
  9. Andrew White

    The problem started the day he got married. Atlleast the IPO debuted with some profit, the day earlier. But the troubles started the day he got married. Something ominous here.

    May 23, 2012 at 10:41 pm | Report abuse |
  10. M3

    A fairly mindless response there. Don't need a lot of space to muster up the fact that Zuck wanted to make more money. He erred by venturing into waters where he is no longer the ultimate boss. Game over for this guy.

    May 24, 2012 at 2:21 am | Report abuse |
  11. mickey1313

    I remember that, but a bet none of the gazillion girls on it do.

    May 24, 2012 at 4:35 am | Report abuse |
  12. info411plumb

    Dot Com Bubble 2.0 Anyone?
    It's Friday, March 10, 2000 all over again....
    How short our memory is that so many will fall for Hype like this 12 years later all over again...

    May 24, 2012 at 5:27 am | Report abuse |
  13. SilverHair

    greed all around.

    May 24, 2012 at 6:27 am | Report abuse |
  14. Trisha

    Im so sick of how the wealthy in this world do things, I dont care anymore! All they do is screw things up!

    May 25, 2012 at 2:12 am | Report abuse |
  15. Jack Mehoff

    I'm ready to buy some shares of facebook when it hits $10. Until then it's just a lot of over valued hype.

    May 25, 2012 at 2:18 am | Report abuse |
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