Regulators probe bank's role in Facebook IPO

Associated Press Modified: May 23, 2012 at 7:45 am •  Published: May 22, 2012
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WASHINGTON (AP) — Regulators are examining whether Morgan Stanley, the investment bank that shepherded Facebook through its highly publicized stock offering last week, selectively informed clients of an analyst's negative report about the company before the stock started trading.

Rick Ketchum, the head of the Financial Industry Regulatory Authority, the self-policing body for the securities industry, said Tuesday that the question is "a matter of regulatory concern" for his organization and the Securities and Exchange Commission.

The top securities regulator for Massachusetts, William Galvin, said he had subpoenaed Morgan Stanley. Galvin 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 late Tuesday that it "followed the same procedures for the Facebook offering that it follows for all IPOs," referring to initial public offerings of stock. It said that 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 $16 billion for the social networking company, valuing it at $104 billion

On Tuesday, Robert Greifeld, the CEO 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 11 a.m. EDT Friday, was delayed more than half an hour because of technical problems at Nasdaq. Some brokerages were still sorting out the aftermath on Tuesday.

"Unfortunately, our clients continue to feel the effects of this in some cases," said Stephen Austin, a spokesman for Fidelity Investments, one of the country's largest brokerages. Fidelity was still waiting for some Facebook stock orders that it placed on Friday to be executed. Fidelity's systems had performed normally, Austin said.

In the meantime, Facebook stock itself has been a disappointment. It fell $3.03 on Tuesday to close at $31 and has now fallen $7, or more than 18 percent, from its offering price of $38. It managed to add just 23 cents in its first hours of trading on Friday, then suffered a big decline on Monday.

The Reuters news service reported Tuesday that a Morgan Stanley analyst, Scott Devitt, cut his estimate for Facebook's revenue this year to $4.85 billion from more than $5 billion earlier. Reuters reported that it was unclear whether Morgan Stanley had told only select clients about the reduced estimate.

Reuters reported that the analyst cut his figures for Facebook while the company's executives, including founder and CEO Mark Zuckerberg, were shopping the stock to potential investors in the weeks ahead of the IPO, a process known in investing as a road show.



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