Facebook’s fiasco of an IPO is turning into a full-scale Wall Street scandal.
- The Securities and Exchange Commission, the Senate Banking Committee, and Massachusetts’ top securities regulator all have launched investigations.
- A group of investors has filed the first lawsuit against Facebook and its five underwriters for having “selectively disclosed” material information to “certain preferred investors.”
- Nasdaq is still trying to figure out which glitches caused Facebook stock to open late and 30 million shares to be traded improperly. Facebook is reportedly looking to move its listing to the New York Stock Exchange.
What’s most disturbing, though, are reports that lead underwriter Morgan Stanley and two other firms cut their earnings estimates for Facebook just before it went public. Yet this information, which would meet any definition of “material” known to man or beast, was whispered only to certain big investors and no one else.
Reuters, which broke the original story, has reported that someone from Facebook told analysts that revenues and earnings would be lighter than expected, but also kept that news under wraps.
Remember, Facebook already had decided to go public at the highest possible price and boosted the number of shares it was selling. So, company insiders and investors, some of whom must have known about the weak projections, dumped more of their shares on unsuspecting investors.
This is a throwback to Wall Street’s sordid practices of the late 1990s when investment banks’ important clients profited at the expense of average investors. (Remember that great Fortune cover story, “You Bought. They Sold”?)
So, after the Eliot Spitzer investigations and the $1 billion settlement to prevent abuses just like this one; the financial crisis; the collapse of Bear Stearns and Lehman Brothers, and the Dodd-Frank Act, these people still haven’t learned a thing.
And yet they have the nerve to get their knickers in a twist when President Obama throws the mildest criticisms their way.
Not nearly enough, I say! Only top executives doing hard time would get Wall Street to change its ways. And maybe not even then.
For years, I’ve written that Wall Street is corrupt and rotten to the core. When will segments of the business media, which feed on Wall Street’s teat for useless “scoops,” realize that?
Andrew Ross Sorkin of The New York Times and CNBC, one of the best connected journalists in New York, actually wondered on Squawk Box whether there was a level playing field for retail investors—as if there’s even a question about it. And he’s the author of “Too Big to Fail”!
Facebook, too, deserves a lot of the blame. The 2004 Google dutch auction was a mess which got the universal derision of the media at the time. But it wound up selling shares at a reasonable price and ordinary people who got in actually made money.
Sadly, Mark Zuckerberg et al have been tainted by this whole incident. By going the traditional Wall Street route, they made a lot more money but lost a lot of their integrity. Was it worth it?
“Who steals my purse steals trash…,” Shakespeare wrote, “but he that filches from me my good name…makes me poor indeed.”
Or in good old American English, if you lie down with dogs, you will get up with fleas.
Looks like Facebook and Zuckerberg have learned that lesson the hard way.
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