Regulatory probe over Facebook IPO-MS & FB

Facebook Inc. (NASDAQ:FB), the world’s leading social networking site, is again in question for its very debated IPO that it rolled out on 17th May. This time the problem is due to Morgan Stanley (NYSE:MS)’s legal case where it had to pay $5 million for leaking out very sensitive information related to its IPO by investment bankers

According to Massachusetts officials, Morgan Stanley (NYSE:MS) is penalized for $5million dollars for letting the news related to revenue information of Facebook Inc. (NASDAQ:FB) to its investment bankers which was not revealed by Facebook Inc. (NASDAQ:FB) to the general public. This scam is seen as the biggest ever after the crash of which lead to stop the bankers from swaying the analysts.

Micheal Grimes, the person who leads the bank’s deal wrote a script to Cipora Herman, the then treasurer for Facebook Inc. (NASDAQ: FB) to red to the Facebook Inc. (NASDAQ: FB)’s reduced revenue estimates according to the analysts. The regulator on the market also questioned Grimes role in the IPO which at the time of the IPO was of a “Senior Investment banker”.

According to an associate professor at Santa Clara University School of Law, Professor Stephen Diamond, Facebook Inc. (NASDAQ:FB) can be questioned whether it was sufficiently forthcoming before the IPO was to be made as sensitive news relating to the IPO was not given to the general public but made available to its investment bankers. In his views SEC should probe deeper into the matter thereby finding out more about the problems of the IPO.

The IPO of Facebook Inc. (NASDAQ:FB) was one of the biggest and the most awaited IPO’S of the year has come once again in question for the settlement made by Morgan Stanley(NYSE:MS) and thereby it has further aggrieved the problems for Facebook Inc. (NASDAQ:FB).The shares of the social networking site have also been hit badly as it has lost 27% from the time their trading was initiated on the 18th may, shares close down 0.1% at $27.71 to a dollar yesterday.

When questioned William Galvin, secretary of the commonwealth of Massachusetts about the issue and whether Facebook Inc. (NASDAQ: FB)’s official acted improperly he said “he does not hold the authority to comment about the authenticity of Facebook Inc. (NASDAQ: FB) officials”. He also added “the broader issue is fairness of marketplace for all investors which are debated for long now”.

Eric Gordon, an assistant professor of the Michigan University said “the real liability for Facebook Inc. (NASDAQ:FB) and Morgan has still to come”. Does this mean that more capital punishment or what we will have to wait and see how far this statement holds true?

Diamond, also said that material facts have been omitted by Facebook Inc. (NASDAQ: FB) in its prospectus, which is a violation of the section-11 of the Security exchange act, 1933. According to him potential investors were told that usage of mobile will reduce the margins and revenues would be hit, but how far and in what respect will it hit the margins was never revealed to the investors. He feels that this is a case wherein investors were misled.

There are also questions about the pricing of the IPO as to why was the price per share set at the high end of price band (i.e.$38 for a share), even after knowing that the revenues for subsequent quarter are not going to be in line with the projected $5 million.

Problems for Facebook Inc. (NASDAQ:FB) and Morgan Stanley (NYSE:MS) does not seem like taking a rest. Let’s see what this case has in store for us in the future and how will it surprise us with the new outcomes and stories.

Shares of Facebook Inc. (NASDAQ:FB) were up by 2.55% to close at $26.93. Shares of Morgan Stanley (NYSE:MS) were up by 0.16% to close at $18.95.

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Published by Steve Hackney

Steve Hackney is a corporate finance professional with over 14 years of experience in cash management and investing. He earned a Bachelor of Science in Finance from Florida State University and holds a Certified Treasury Professional certification. Steve lives in Orlando, Florida with his family.