Though it is too early to predict about long-term future of Facebook but the way IPO was handled clearly shows extreme greed as the key driver in Facebook founder/s. This is simply case of extreme greed. Which is fine but definitely buy a big question mark on future of FB. It is truly great product and I have personally love it. But as Investor, I would be seriously skeptical of investing in it even if they consistently perform well on stock market.
I think there is way too much personal ambitions and pride in top management of FB, there should be some but at the same time there has to be due respect for others. It is important to treat average investor as now perception is big thing.
Whereas if we look at Google's IPO, they were the first one to open up IPO to general public and now looking back, it was fairly prices. They didn't kept on raising offering price till the last moment and kept on off-loading founder's stocks..
I am not expert in Finance or legal matters.. but this definitely leaves bad taste and will result in further cutting of my Facebook's face time :-(
Here is the link for full story..
http://www.siliconvalley.com/ci_20705548/facebook-could-face-huge-damage-claims-from-ipo
FACEBOOK STOCK SALE
Tipoff at root of IPO uproar
Social media giant could be at risk if its bankers got alert that others didn’t
By Troy Wolverton and John Boudreau
Staff writers
Facebook could be on the hook for $1 billion or more in damages if plaintiffs lawyers can prove allegations that the company and its bankers misled investors in its initial public offering.
The Menlo Park-based social networking company and its banking partners face a slew of lawsuits in the aftermath of its bungled IPO last week, which raised $16 billion for Facebook and company insiders.
The suits accuse the company of misleading investors by failing to share with them information it passed on to select Wall Street analysts — a warning that its current quarter financial results weren’t going to be as rosy as expected.
“There appears to be a good argument that it is misleading,” said Mercer Bullard, a securities law professor at the University of Mississippi. “That’s definitely a potential problem for Facebook and the underwriters.”
If plaintiff’s lawyers can show that the warning wasn’t included in the offering documents Facebook filed with the Securities and Exchange Commission and that it was “material” — meaning it could have a significant impact on a company’s stock price — then Facebook could face huge damages, said John Coffee, a securities law professor at Columbia University.
Securities experts say the company could be liable for investors’ losses on the stock after it plunged on the second and third days of trading. One of the lawsuits asks for damages of $1 billion or more, but the potential payout could be much bigger.
“Facebook has plenty to fear,” Coffee said. “It’s up to a jury to determine what’s material, (but) if the case survives a motion to dismiss, it’s likely to settle — and to settle at a dear price.”
Facebook has vowed to defend itself against the charges. Morgan Stanley, its lead underwriter in the IPO, also denies any wrongdoing.
At the heart of the controversy are alleged discrepancies between what Facebook said in a document filed May 9 with the SEC and what company officials told select analysts soon afterward.
Buried deep within that filing was a warning to potential investors that Facebook’s number of average daily users was continuing to outpace the number of advertisements it was delivering to them.
That potential revenue problem had first come up in the previous quarter’s results and was due in part to a growing number of users accessing Facebook through its mobile site and applications, which generally don’t include ads. Elsewhere in the document Facebook vaguely warned that the shift in usage to mobile devices might “negatively affect” its financial results, but didn’t acknowledge that it already was affecting revenues or say by how much.
After Facebook published the document, one or more company officials contacted a select number of Wall Street analysts, according to published reports. According to those reports, the officials warned analysts, including at least some who worked for the banks underwriting Facebook’s offering, that they needed to cut their forecasts for the company’s current quarter.
Analysts at Morgan Stanley and those from at least three of the other underwriters of Facebook’s IPO followed that advice, according to Reuters. It’s highly unusual for a company’s underwriters to cut their forecasts in the run-up to an IPO, and apparently that information was shared with only a small number of their major clients.
The updated forecasts led at least some of those in the know either to not participate in the IPO or to dramatically scale back their purchases, according to the reports.
Despite the flagging demand from some big investors, the IPO not only went forward, but the initial price and the number of shares sold were raised in the days immediately before the offering, reportedly on strong demand from individual investors.
Under a regulation that was put in place during the dot-com boom, public companies are generally prohibited from sharing material information with some investors but not others. However, there’s a loophole in the regulations for nonpublic companies, even those that are about to go public, securities law experts said. So even though investors may feel mistreated, such selective disclosure probably wasn’t illegal.
“In every roadshow there tends to be information revealed that’s likely material but that does not get given to the ordinary investor,” Coffee said.
The key question for Facebook, the banks and its investors is whether the information company officials shared with the Wall Street analysts was significantly different from what the company was telling investors in the documents, securities law experts said.
Under the securities laws, companies don’t always have to disclose material information to investors or potential investors, Bullard said, but they do have to make sure that what’s in their regulatory documents isn’t misleading.
Facebook and its partners could face other problems as well. Congress, the SEC and the Financial Industry Regulatory Authority have all said they plan to investigate the IPO, which was also marred by glitches in the Nasdaq’s trading system. Such investigations could lead to civil charges by the SEC. Although the SEC tends to levy only minor fines against security law violators, a settlement with the SEC can often aid plaintiffs who have filed private lawsuits.
“Given the high-profile nature of Facebook, and given the massive number of small retail investors investing in it, the regulators would like nothing more than to make a high-profile example out of Facebook” should they find wrongdoing, said Andrew Stoltmann, a securities attorney.
Contact Troy Wolverton at twolverton@mercurynews.
com or at 408-840-4285.
“Facebook has plenty to fear. … If the case survives a motion to dismiss, it’s likely to settle — and to settle at a dear price.”
— JohnCoffee, securities law professor, Columbia University
I think there is way too much personal ambitions and pride in top management of FB, there should be some but at the same time there has to be due respect for others. It is important to treat average investor as now perception is big thing.
Whereas if we look at Google's IPO, they were the first one to open up IPO to general public and now looking back, it was fairly prices. They didn't kept on raising offering price till the last moment and kept on off-loading founder's stocks..
I am not expert in Finance or legal matters.. but this definitely leaves bad taste and will result in further cutting of my Facebook's face time :-(
Here is the link for full story..
http://www.siliconvalley.com/ci_20705548/facebook-could-face-huge-damage-claims-from-ipo
Tipoff at root of IPO uproar
Social media giant could be at risk if its bankers got alert that others didn’t
By Troy Wolverton and John Boudreau
Staff writers
Facebook could be on the hook for $1 billion or more in damages if plaintiffs lawyers can prove allegations that the company and its bankers misled investors in its initial public offering.
The Menlo Park-based social networking company and its banking partners face a slew of lawsuits in the aftermath of its bungled IPO last week, which raised $16 billion for Facebook and company insiders.
The suits accuse the company of misleading investors by failing to share with them information it passed on to select Wall Street analysts — a warning that its current quarter financial results weren’t going to be as rosy as expected.
“There appears to be a good argument that it is misleading,” said Mercer Bullard, a securities law professor at the University of Mississippi. “That’s definitely a potential problem for Facebook and the underwriters.”
If plaintiff’s lawyers can show that the warning wasn’t included in the offering documents Facebook filed with the Securities and Exchange Commission and that it was “material” — meaning it could have a significant impact on a company’s stock price — then Facebook could face huge damages, said John Coffee, a securities law professor at Columbia University.
Securities experts say the company could be liable for investors’ losses on the stock after it plunged on the second and third days of trading. One of the lawsuits asks for damages of $1 billion or more, but the potential payout could be much bigger.
“Facebook has plenty to fear,” Coffee said. “It’s up to a jury to determine what’s material, (but) if the case survives a motion to dismiss, it’s likely to settle — and to settle at a dear price.”
Facebook has vowed to defend itself against the charges. Morgan Stanley, its lead underwriter in the IPO, also denies any wrongdoing.
At the heart of the controversy are alleged discrepancies between what Facebook said in a document filed May 9 with the SEC and what company officials told select analysts soon afterward.
Buried deep within that filing was a warning to potential investors that Facebook’s number of average daily users was continuing to outpace the number of advertisements it was delivering to them.
That potential revenue problem had first come up in the previous quarter’s results and was due in part to a growing number of users accessing Facebook through its mobile site and applications, which generally don’t include ads. Elsewhere in the document Facebook vaguely warned that the shift in usage to mobile devices might “negatively affect” its financial results, but didn’t acknowledge that it already was affecting revenues or say by how much.
After Facebook published the document, one or more company officials contacted a select number of Wall Street analysts, according to published reports. According to those reports, the officials warned analysts, including at least some who worked for the banks underwriting Facebook’s offering, that they needed to cut their forecasts for the company’s current quarter.
Analysts at Morgan Stanley and those from at least three of the other underwriters of Facebook’s IPO followed that advice, according to Reuters. It’s highly unusual for a company’s underwriters to cut their forecasts in the run-up to an IPO, and apparently that information was shared with only a small number of their major clients.
The updated forecasts led at least some of those in the know either to not participate in the IPO or to dramatically scale back their purchases, according to the reports.
Despite the flagging demand from some big investors, the IPO not only went forward, but the initial price and the number of shares sold were raised in the days immediately before the offering, reportedly on strong demand from individual investors.
Under a regulation that was put in place during the dot-com boom, public companies are generally prohibited from sharing material information with some investors but not others. However, there’s a loophole in the regulations for nonpublic companies, even those that are about to go public, securities law experts said. So even though investors may feel mistreated, such selective disclosure probably wasn’t illegal.
“In every roadshow there tends to be information revealed that’s likely material but that does not get given to the ordinary investor,” Coffee said.
The key question for Facebook, the banks and its investors is whether the information company officials shared with the Wall Street analysts was significantly different from what the company was telling investors in the documents, securities law experts said.
Under the securities laws, companies don’t always have to disclose material information to investors or potential investors, Bullard said, but they do have to make sure that what’s in their regulatory documents isn’t misleading.
Facebook and its partners could face other problems as well. Congress, the SEC and the Financial Industry Regulatory Authority have all said they plan to investigate the IPO, which was also marred by glitches in the Nasdaq’s trading system. Such investigations could lead to civil charges by the SEC. Although the SEC tends to levy only minor fines against security law violators, a settlement with the SEC can often aid plaintiffs who have filed private lawsuits.
“Given the high-profile nature of Facebook, and given the massive number of small retail investors investing in it, the regulators would like nothing more than to make a high-profile example out of Facebook” should they find wrongdoing, said Andrew Stoltmann, a securities attorney.
Contact Troy Wolverton at twolverton@mercurynews.
com or at 408-840-4285.
“Facebook has plenty to fear. … If the case survives a motion to dismiss, it’s likely to settle — and to settle at a dear price.”
— JohnCoffee, securities law professor, Columbia University
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