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Facebook stock price tanks, in 'illegal' IPO 'fraud'
The Facebook (NASDAQ:FB) stock price has fallen again, and now we hear allegations that aspects of the IPO may have violated securities laws. If true, the outrage is that insider knowledge in the run-up to the IPO wasn't shared with small investors -- allowing the big boys to make the big bucks. In IT Blogwatch, bloggers are the 99%.
[Updated: Facebook and its underwriter banks face the book being thrown at them by the SEC and others]
By Richi Jennings: Your humble blogwatcher curated these bloggy bits for your entertainment. Not to mention: You are the product...
Sharon Gaudin gives us the context:
Facebook...stock fell to $31 per share...Tuesday. ... Since the stock was first offered at $38 per share last Friday...[it's] disappointed the market.
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Facebook co-founder and CEO Mark Zuckerberg was publicly chastised for wearing jeans and a hoodie [to meet] Wall Street investors. His casual appearance left some wondering whether [he] had the maturity to run a major public company.
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General Motors pulled a major ad deal just before the IPO...say[ing] Facebook's ads weren't working.
But Henry Blodget says that's not the reason why the stock tanked:
[A]nalysts at Facebook's IPO underwriters...cut their estimates...in the middle of the...roadshow, a highly unusual and negative event...because a Facebook executive who knew the business was weak told them to.
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But it only told the underwriter analysts about this...[who told it] to sophisticated institutional investors...but not to smaller investors.
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[At] best, this "selective disclosure"...is grossly unfair to investors who bought Facebook stock on the IPO. ... At worst, it's a violation of securities laws. ... I've been in and around the tech IPO business for almost 20 years, and I've never heard of it happening.
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Wall Street insiders once again got top-notch information...and individuals got the shaft.
And Adrian Chen is the 99%:
[The] fallout from the most hyped IPO in history bursts...the idea that Facebook is different than any other corporation hell-bent on making as much money as possible for a handful of...people.
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[W]hen Facebook was listed, our own lives were literally put on sale...[but] we weren't worth as much as a lot of people thought. ... It turns out that the insiders who did the Facebook deal withheld some important information...the whole game was rigged...from the start—even more than usual for Wall Street.
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Morgan Stanley and the other...underwr[iters] have a good shot at making a profit by short selling...under an arcane financial move known as the "Greenshoe option." Nice deal, if you can get it.
Meanwhile, Dan Lyons implies Zuck and co. have fake jobs:[You're trying too hard -Ed.]
[N]one of this should come as a surprise. ... Since its origin in a Harvard dorm room...the company has been dogged by...people who felt tricked and ill-treated by CEO and cofounder Mark Zuckerberg.
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[A]llegations that Zuckerberg had stolen the idea for Facebook...[who] an instant-message exchange from that time...said of the guys who had hired him, “I’m going to **** them.”
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[R]eports that...Zuckerberg had hacked into the private email of reporters...and had hacked into the rival social network created by the guys he’d threatened to “****.”
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Then there emerged an IM string...in which Zuckerberg offered to give a pal access to private information that Facebook was collecting from [early users], saying, “They ‘trust me.’ Dumb ****s.”
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[Cofounder] Eduardo Saverin, sued Zuckerberg claiming he’d been defrauded. ... Later, emails emerged revealing that Zuckerberg asked...if there’s “a way to do this without making it painfully apparent to him.”
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The larger picture is that a powerful company...collecting more information about more people than any [other]...is in the control of a...man who has a history of being, well, less than forthright.
Speaking of Eduardo Saverin, the pseudonymous leveutcomments thus:
Saverin...was critical to the initial financing. ... Yet, Zuckerberg tried to **** him but good. ... There is another lesson in the...parade of privacy violations.
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[T]hose lessons suggest the true Mission Statement of Facebook: To seduce and trick people into posting...intimate information on Facebook, and then to **** them but good any way we can.
Update: David Maris wonders what happens now:
[There's] a growing list of regulatory bodies interested in getting to the bottom [of this]. ... Already the SEC and FINRA have expressed an interest...and the the top securities regulator for Massachusetts has reportedly...subpoenaed Morgan Stanley.
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[M]any are focused on whether the allegations are true. ... [But] if they are true, what are the possible remedies? ... [W]ould [they] be forced to give back investor money? ... [A] cornerstone of security fraud law is to first “make whole” on damages. ... Depending on culpability, making whole...could run into the billions – or tens of billions.
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No mater the eventual outcome, Facebook and...banks are quickly losing face. ... If anything improper occurred, the financial impact...might be substantial.
Richi Jennings is an independent analyst/consultant, specializing in blogging, email, and security. He's the creator and main author of Computerworld's IT Blogwatch, for which he has won ASBPE and Neal awards. He also writes The Long View for IDG Enterprise. A cross-functional IT geek since 1985, you can read Richi's full profile and disclosure of his industry affiliations.
