Facebook flotation faces probe amid bad forecast claims
Category: Global Market
May 23, 2010 / By Harry HAYDON / Sun
FACEBOOK’S flotation is facing a US probe amid allegations that some investors were kept in the dark over dire forecasts for the stock.
Shares have continued to fall since the multi-billion dollar flotation on Friday.
Now reports in America claim that Morgan Stanley, the lead underwriter on the deal, shared information with its major clients that suggested the stock would fall - while keeping smaller investors unaware.
Reports say that in the run-up to Facebook's historic $16billion (£10.1billion) IPO on Friday, the bank unexpectedly delivered negative report to major clients.
It is unclear whether Morgan Stanley only told its top clients about the revised view or spread the word more broadly.
Senior US financial regulatory chief Rick Ketchum said the question is "a matter of regulatory concern" for his organisation and the Securities and Exchange Commission.
The top securities regulator for Massachusetts, William Galvin, said he had subpoenaed Morgan Stanley.
He said his office is investigating whether Morgan Stanley divulged to only some clients that one of its analysts had cut his revenue estimates for Facebook before the stock hit the market on Friday.
The bank said on Tuesday that it "followed the same procedures for the Facebook offering that it follows for all IPOs" - initial public offerings of stock. It said its procedures complied with regulations.
The questions about the role played by Morgan Stanley, the lead underwriter for the deal, add to the confusion surrounding Facebook's IPO.
In the most hotly anticipated stock debut in years, the offering raised 16billion US dollars (£10.1billion) for the social networking company, valuing it at 104 billion US dollars (£65.8 billion).
On Tuesday, Robert Greifeld, chief executive of the Nasdaq Stock Market, acknowledged to shareholders of Nasdaq's parent company that "clearly we had mistakes within the Facebook listing".
The stock debut, originally set for 11am EDT on Friday, was delayed for more than half an hour because of technical problems at Nasdaq. Some brokerages were still sorting out the aftermath on Tuesday.
In the meantime, Facebook stock itself has been a disappointment. It fell 3.03 US dollars (£1.92) on Tuesday to close at 31 US dollars (£19.62) and has now fallen 7 US dollars (£4.43), or more than 18%, from its offering price of 38 US dollars (£24.05).
It managed to add just 23 cents (15p) in its first hours of trading on Friday, then suffered a big decline on Monday.