Financial Regulators Investigating Facebook IPO as Stocks Lose Value

By Jon E. Dougherty at 23 May 2012

(Newsroom America) -- Government financial regulators are looking into charges that brokerage firm Morgan Stanley may have shared negative information with institutional investors prior to the launch of Facebook's recent initial public offering.

Officials with Financial Industry Regulatory Authority say that, if true, would be a violation of federal regulations and industry rules governing investing.

"The allegations, if true, are a matter of regulatory concern" to FINRA and the Security and Exchange Commission, said FINRA chief Richard Ketchum, in an interview with Reuters.

Ketchum's comments come amid allegations that Morgan Stanley, the chief underwriter, shared negative news about the $16 billion IPO with top clients prior to launch.

Reports said Scott Devitt, the bank's Internet analyst, was reducing his revenue forecasts for Facebook, something experts say is highly unusual so close to an IPO.

In response to the allegations, Massachusetts Secretary of Commonwealth William Galvin issued a subpoena to Morgan Stanley regarding discussions with investors in Facebook.

"The Securities Division has put out a subpoena to Morgan Stanley in connection with the analyst's discussion with certain institutional investors about the revenue prospects for Facebook," said a spokesman for Galvin's office, according to CNBC.com.

In a statement to CNBC, Morgan Stanley said it followed all standard procedures in launching Facebook's IPO.

"Morgan Stanley followed the same procedures for the Facebook offering that it follows for all IPOs. These procedures are in compliance with all applicable regulations," the brokerage said.

"After Facebook released a revised S-1 filing on May 9 providing additional guidance with respect to business trends, a copy of the amendment was forwarded to all of MS’s institutional and retail investors and the amendment was widely publicized in the press at the time," the statement said. "In response to the information about business trends, a significant number of research analysts in the syndicate who were participating in investor education reduced their earnings views to reflect their estimate of the impact of the new information. These revised views were taken into account in the pricing of the IPO."

Others are upset with the way Nasdaq handled the IPO.

Maryland resident Phillip Goldberg is seeking class-action status on behalf of all investors who lost money because he says the exchange either delayed or otherwise mishandled their buy, sell or cancellation orders for Facebook stock during the May 18 launch.

Nasdaq officials say the exchange would have addressed the issues if they were aware of the extent of technical problems which delayed the IPO.

Facebook shares have tumbled since the IPO. On Tuesday they slipped again, closing at $31 a share, or down 18 percent since the offering.

© 2012 Newsroom America.

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