As Facebook shares tumbled in trading Tuesday, investors and analysts are starting to blame the social network's botched initial public offering on Morgan Stanley, the lead banker on the IPO, Nasdaq and even Facebook itself.
The New York Times reported that critics say Facebook’s offering price was too high and too many shares were sold to the public, hurting the stock’s performance out of the gate.
According to CBS News, bankers are questioning why Morgan Stanley's consumer internet analyst unexpectedly reduced his revenue forecasts for the company in the weeks leading up to the May 18 IPO.
Reuters wrote Scott Devitt delivered the negative news to major clients while the investor roadshow was underway, which was a big shock to some investors.
It followed Facebook's filing of an amended prospectus with the Securities and Exchange Commission (SEC), in which the company expressed caution about revenue growth due to the shift to mobile devices. As Reuters wrote, mobile advertising is less profitable.
Henry Blodget, editor of The Business Insider, wrote it's likely that news dampened interest in the IPO.
"In other words... investors who did not hear about these underwriter estimate cuts were placed at a meaningful and unfair information disadvantage," Blodget explained. "They did not know what a lot of other investors knew, and they suffered for it. Selective dissemination of this sort could be a direct violation of securities laws. Irrespective of its legality, it is also grossly unfair. The SEC should investigate this immediately."
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Facebook's stock, which opened Friday at $42.05 and fluctuated between $45 and $38 throughout the day, closed Tuesday at $31 or 8.5 percent off of their opening bell price. It was down to $30.76 in after hours trading by 7:25 p.m.
As GlobalPost reported Monday, traders were informed a day ago that regulators at the Financial Industry Regulatory Authority (FINRA) were looking into Friday’s botched trades, according to CNBC. The SEC is also looking into the problems.
The New York Times reported that a systems glitch at the Nasdaq hampered trading in the first few hours.
Those errors prevented some investors from confirming trades or cancelations, which some said cost them tens of thousands of dollars, according to the Wall Street Journal.
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