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. Borealbob

    FRAUD- FROM TOP TO BOTTOM- THE COMPANY IS WORTH NOTHING-AND A SUCKER IS BORN EVERY MINUTE!

    May 23, 2012 at 12:43 pm | Report abuse |
  2. David Mariscal

    You people need to stop whining and get with good investment brokers. If you didn't have inside info and cheat you're a total idiot and deserve to rot in the 99% wal-mart hell that is your life. Wall street isn't a game and there are no rules, stop complaining!

    May 23, 2012 at 12:43 pm | Report abuse |
    • Zman1978

      Its definitley a greedy game, making profit where you didn't even work

      May 23, 2012 at 12:45 pm | Report abuse |
    • yup

      you sound like the type of person that enjoys 0 out of 365 days a year

      May 23, 2012 at 1:04 pm | Report abuse |
    • Borealbob

      Exactly----– Wall Street is for insider traders- i.e. cheaters. If you think you can beat this system by playing by the rules- you are a friggin idiot! WELCOME TO AMERIKA!

      May 23, 2012 at 1:38 pm | Report abuse |
  3. GenYer

    I knew this was going to happen............... Called it.

    May 23, 2012 at 12:43 pm | Report abuse |
  4. James

    I thought about buying a single stock of Facebook.... Yea, I knew it would be worthless in a couple weeks.... instead, I went and saw the Avengers.... twice.... totally worth it.

    May 23, 2012 at 12:43 pm | Report abuse |
  5. elucidated1

    "Insider information" "tipped off?" Well, that is surprising.=-) Too bad the SEC is in bed with investment firms and has no problem with insider trading or Congressmen being tipped off to good deals. . .while Joe Public just slogs along. And tell me again how many Wall Street investment firms or banks have been prosecuted? Try none. I guess it's the American way if you can justify it.

    May 23, 2012 at 12:43 pm | Report abuse |
  6. paul

    Gee, so only the very wealthy were tipped off? And you wonder why there are Occupy protests?

    May 23, 2012 at 12:43 pm | Report abuse |
  7. nitrous

    This is the very reason I just put my life savings into AOL stocks!

    May 23, 2012 at 12:44 pm | Report abuse |
  8. b

    i didn't trust him when he came out in a hoodie

    May 23, 2012 at 12:44 pm | Report abuse |
  9. SYLVAN FINKELSTEIN

    LIKE I MENTIONED BEFORE THIS STOCK WILL GO BELLY UP BEFORE LONG

    May 23, 2012 at 12:44 pm | Report abuse |
  10. mtngal

    This is the stock market being the stock market. It's a gamble and a risk. Anyone who could not see the outrageous IPO hype for what it was, should not be playing with money anyhow.

    The big guys duped the little guys and that's how it has always been. They have access to information and connections that others don't. If you can't afford to lose what you put in, don't play. The smarter investor (ie player) wins. Suck it up and don't get fooled the next time some overhyped IPO gets media attention.

    May 23, 2012 at 12:44 pm | Report abuse |
    • muhron

      Good points... The big players always find ways to hoodwink the average investor. Let the buyer beware.

      May 23, 2012 at 1:00 pm | Report abuse |
  11. jbird68

    They need to question his Singapore bound friend. He left facebook, and the country in a big damn hurry

    May 23, 2012 at 12:45 pm | Report abuse |
    • redmonde

      Yep.. I agree. To eager to give up his citizenship.

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

    If the data used to forecast their revenue projection was available publicly, baseless lawsuit. Just a bunch of butthurt speculators who lost out trying to 'ride the wave' to riches. To win big, you have to lose big too suckas. If you can't handle the losses, better not play the game.

    May 23, 2012 at 12:45 pm | Report abuse |
  13. steven

    What exactly are you buying when you get a FB stock? Nothing. makes more sense to get a silver coin or something

    May 23, 2012 at 12:45 pm | Report abuse |
  14. max3333444555

    and why is it exactly facebooks issue? it sounds like the banks behind the offering were to blame.

    May 23, 2012 at 12:46 pm | Report abuse |
    • Capiers

      It's simple FB knowingly over valued there business so when the bell opened on the first day for FB stock it would sell higher then what it is worth. If you read one of the posts above you will see how many shares each exec at FB sold and for how much.. all sold for more than they are currently worth.

      May 23, 2012 at 1:36 pm | Report abuse |
    • Butthurt

      *their

      May 23, 2012 at 4:03 pm | Report abuse |
    • Matthew

      According to the article, facebook fudged the numbers. That is clearly their fault! False reporting is a violation of Sarbanes-Oxley. Facebook and all the banks could face serious penalties.

      May 23, 2012 at 2:30 pm | Report abuse |
    • Bob

      Not to worry. Zuckerberg has enough money to by all the congressmen and senators that he needs and will still be rich.

      May 23, 2012 at 3:12 pm | Report abuse |
    • mickey1313

      Not serious enough.

      May 23, 2012 at 3:26 pm | Report abuse |
    • BE KIND

      ...because no one goes into an IPO without knowing every single detail of minutia around their corporation's offering.
      use your head, please.

      May 23, 2012 at 3:01 pm | Report abuse |
    • bear

      Because FB's owners got most of the extra money that was invested due to the "over valuation". If you profit from someone rigging the game, they are going to make you give some of the money back.

      May 23, 2012 at 3:25 pm | Report abuse |
    • nbgb

      This is typical Wall Street business as usual. Nothing real, nothing true grab all you can , leave nothing behind. This is why we are not ready to reduce the size of the government. Until people can control themselves the government must do it for us. Maybe someday

      May 23, 2012 at 3:27 pm | Report abuse |
    • who cares

      misrepresentation of earnings forecast.

      May 23, 2012 at 3:49 pm | Report abuse |
  15. GEORGE

    Hope this doesn't ruin the honeymoon! HA!

    May 23, 2012 at 12:46 pm | Report abuse |
    • Evangelicide

      Oh that's good!

      Damn near spit coffee on my monitor...

      May 23, 2012 at 12:54 pm | Report abuse |
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