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. sf

    Can't wait for this facebook garbage goes away! society's a bug dummy that's falls for this crap...and zuck is just another white piece of garbage out to watch out for himself and make millions off the ignorant.

    May 23, 2012 at 12:51 pm | Report abuse |
  2. larry5

    Mark's problem is that he mixed business with work. He got caught in the middle.

    May 23, 2012 at 12:51 pm | Report abuse |
  3. Vikinglord

    The truth is that this guy does not deserve to have the money he does. Yeah, yeah, he had a supposidly "great" idea, and he does deserve to be wealthy, but is he developing life saving medicine? Is he providing a service that is crutial to the economy, our transportation, education? No. It is the people who have no acitve social life, or folks who feel they need to tell everyone about their lives, that made Facebook what it is. Like Betty White said, "Just a huge waste of time". I hope this kills Facebook's popularity, or at least brings it down to something that is OK for an occassional use. Too many people obsess over this.

    May 23, 2012 at 12:51 pm | Report abuse |
  4. MightyMoo

    I bet there are some lawyers clicking the LIKE button all the way to the bank as this goes on. 🙂

    May 23, 2012 at 12:51 pm | Report abuse |
  5. Bob

    After the dust settles Zuck will still be rich!!! Jealous? Thought so.

    May 23, 2012 at 12:52 pm | Report abuse |
  6. JackTors

    Poor Zuckerberg. The money grubbing liar is getting his just deserts.

    May 23, 2012 at 12:52 pm | Report abuse |
  7. svann

    This is one case where Ill agree that its slimy lawyers trying to turn a buck. To win a lawsuit against FB you need to show actual false information was given. The question of whether MS gave out recommendations to select few is a separate question and would lead to lawsuit against MS not FB. Did FB give MS information that was not available to regular investors? What information exactly?

    May 23, 2012 at 12:52 pm | Report abuse |
  8. LiberalNN


    May 23, 2012 at 12:52 pm | Report abuse |
  9. Guest

    it was not about select people getting inside information. If anyone with any idea of investing would have stayed away from FB, or purchased then sold short after a few hours. It was all over public media how horrible of a buy it was. Since it tanked people are crying, if the stock rallied I doubt anyone would have filled a lawsuit. What a joke.

    May 23, 2012 at 12:52 pm | Report abuse |
    • paul

      No, you can't just ignore what went on. It affected the stock price. Your opinion may be right, but it is an opinion.

      May 23, 2012 at 12:56 pm | Report abuse |
    • Bob L

      They tried and are continuing to attempt to overvalue Facebook through accounting, cooked statistics and investing tricks. I think they know they are pushing it past the line and are mostly succeeding at it. Part of the problem is the amount of people who are buying into it.

      May 23, 2012 at 1:01 pm | Report abuse |
  10. Cameron

    Maybe I'm just dazed and confused.

    But what exactly are you buying with FB stock?

    There's no viable service or product that FB offers.

    Is it......magic they're selling? Pixie dust?

    May 23, 2012 at 12:52 pm | Report abuse |
    • paul

      Ads and personal information is where they make their money.

      May 23, 2012 at 12:56 pm | Report abuse |
    • LOl

      You are buying 1/10th of a vote. Maybe if they get lucky stock holders might get free farmville money!

      May 23, 2012 at 12:57 pm | Report abuse |
    • Norm

      Intrusive advertising dollars..........
      Just like every other web site on the NET.......

      May 23, 2012 at 12:57 pm | Report abuse |
  11. JamieY

    lol@Bob's Ghost.

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

    Serves Zuckerberg and all the fools who bought in on this crapola company right. And, the bonus is that we all get yet another reason why there needs to be tighter reins on banks and their shady operations.

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

    11 year old investors have 10,000 $? Shouldn't it be "An investor with 11 years of experience." What 11 year olds are allowed to freely invest on Wall St?

    Man, I wish I had had 10,000 at 11 years old, I would have bought a ton of video games.

    May 23, 2012 at 12:53 pm | Report abuse |
    • Norm

      I would have spent it all on 14 year old girls..................

      May 23, 2012 at 12:59 pm | Report abuse |
  14. Shiloh

    Looks like a lot of greedy people got "zucked" in this piece of wallpaper.

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

      I think zuck has zucked a lot of people for his Billions. They all seem to sue and win.

      May 23, 2012 at 12:58 pm | Report abuse |
  15. just a gurl

    am trying to think of something positive say about Macebook, but ... NOPE -wait! its ABSENCE will be positive! See, I knew I learned something in Kindergarten!

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