Facebook IPO Furor: Feds Probing Deal Over Insider Bank Warnings

May 23rd, 2012

FAKE NEWS for the Zionist agenda

What do they take us for, Muppets?

Facebook warned its investment banks of new doubts about the social network’s business prospects just days before the high-profile IPO — but the banks didn’t bother passing that information to the investing public, according to a series of startling reports that emerged Tuesday. Instead, they tipped off favored clients who, in turn, scaled back plans to buy Facebook stock, even as the banks raised the IPO price amid a frenzy of hype.

The new revelations, which came as Facebook shares plunged nearly 9% Tuesday, drew immediate scrutiny from federal financial regulators, who pledged to review the IPO — and a subpoena from the Massachusetts secretary of state. Meanwhile, the Nasdaq stock exchange faced a growing chorus of anger — and a class action lawsuit — over its botched handling of the IPO, which has already become one of the worst-performing three-day starts for an offering over $1 billion in the last five years.

(VIDEO: The Facebook IPO: Explainer)

All told, Facebook’s highly-vaunted IPO — which was supposed to be a shining moment for the social network, as well as its lead banker Morgan Stanley and the Nasdaq exchange — has morphed into a debacle that’s reinforced some of the worst stereotypes about Wall Street: that corporate executives and their bankers engineer IPOs to maximize profits at the public’s expense; that Wall Street’s own systems have become too complex for its personnel to handle; and that the entire game is a hype-fueled casino, rigged for the house with a sucker played by the average investor. “The FB IPO selective disclosure stories just keep getting worse,” Sallie Krawcheck, former head of wealth management at Bank of America, wrote in a Twitter message. “If true, an absolute outrage. Come on, Wall St!!”

Just what did Facebook executives tell the stock analysts at their investment banks in the days before the offering? On May 9, just over a week before the scheduled IPO, Facebook issued an updated prospectus with the Securities and Exchange Commission. In dense securities-legalese, Facebook said that the number of daily users was increasing faster than the number of ads the company was serving, a change it attributed to its fast-growing mobile user base. As a strictly legal matter, such an updated “risk factor” may have served to satisfy regulatory requirements about public disclosure of “material information” prior to the IPO. But Facebook executives went further, according to The New York Times, personally calling stock analysts at the company’s top IPO investment banks to update them on the company’s financial projections.

(More: Facebook IPO Fallout: Four Lessons from a Rocky Public Debut)

As a result, analysts at Morgan Stanley, Facebook’s lead underwriter, as well as Goldman Sachs and JPMorgan Chase, which also participated in the IPO, reduced their financial forecasts for Facebook just days before the IPO, according to Reuters. “This was done during the roadshow – I’ve never seen that before in 10 years,” one mutual fund source told Reuters. The analysts then tipped-off favored clients, one of whom was warned that second-quarter revenue could be “5 percent lower” than earlier estimates, while another was told that revenue could be “light” for the next two years, according to The Times.

Here’s the crucial point: While the investing public should have taken heed of Facebook’s (very opaque) prospectus update, the overall market was not the beneficiary of personal calls from company executives — calls that appear to have involved more detailed information than was available to the general public. Indeed, that more-detailed information seems to have been quickly funneled to favored clients. Meanwhile, the investment bankers, led by Morgan Stanley, raised the IPO offering price in the face of supposedly white-hot investor demand that, days later, proved to have been significantly overstated. Facebook shares have plunged 20% since the IPO, wiping out $17 billion from the company’s valuation, as Morgan Stanley and other underwriters stopped propping up the stock at the IPO price of $38.

(More: Facebook IPO: After the Hype, Investors Are Betting on Hope)

The new allegations prompted concern from federal and state officials on Tuesday, as well as denial of wrong-doing from Morgan Stanley:

•William Galvin, Massachusetts’ secretary of state, issued a subpoena to Morgan Stanley seeking information about discussions the bank’s analysts may have had with favored investors about Facebook’s revenue prospects.
•Securities and Exchange Commission Chairman Mary Schapiro told reporters: “I think there is a lot of reason to have confidence in our markets and in the integrity of how they operate, but there are issues that we need to look at specifically with respect to Facebook.”
•Financial Industry Regulatory Authority chairman Richard Ketchum told Reuters: “The allegations, if true, are a matter of regulatory concern” to FINRA and the SEC.
•In a statement cited by Reuters, Morgan Stanley said the procedures it followed for the Facebook IPO “are in compliance with all applicable regulations.”

Meanwhile, Nasdaq, still reeling Tuesday over its botched handling of the IPO, was hit with a lawsuit seeking class-action status for those who lost money in the offering. Trading was delayed for 30 minutes on Friday, and trades for millions of shares were never confirmed, leading one trading executive to brand the debacle “arguably the worst performance by an exchange on an IPO ever.” Nasdaq CEO Robert Greifeld blamed “poor design” in the exchange’s trading software — ironic given the exchange’s reputation as the preferred home of tech companies. And on Tuesday, another Nasdaq official claimed the exchange would have halted the offering altogether had it fully understood the extent of its technical problems.

Taken together, the latest developments in Facebook’s IPO are a growing black-mark on what should have been a triumphant public debut for the social networking giant, as well as a moment of glory for Morgan Stanley and Nasdaq. Instead, the botched IPO has turned into a debacle for just about everyone — except Facebook’s early investors and insiders, who sold $9 billion worth of shares that they had acquired at lower prices. “It’s dreadful for the markets,” former SEC Chairman Arthur Levitt told Reuters of the IPO and its handling by banks and Nasdaq. “It’s an event with long-lasting negative implications for an industry that can ill afford this kind of blemish, and the last chapter hasn’t been written. Nobody looks good here.”

MORE: Even Pre-IPO, Facebook’s Executives Were Richly Rewarded

View this article on Time.com