Facebook's IPO Faces Scrutiny
Business fundamentals aside, Web watchers are now wondering whether Facebook can recover from its flubbed IPO.
Facebook, its underwriters, including Morgan Stanley, and founder Mark Zuckerberg, are facing multiple lawsuits alleging that the company hid weakened growth forecasts ahead of its $16 billion public event.
“The highly publicized IPO is facing scrutiny from several quarters for possible irregularities that may have occurred before the stock was floated and continued through the first day of trading,” reports PCMag.com.
In one New York case, “shareholders said research analysts at several underwriters had lowered their business forecasts for Facebook during the IPO process, but that these changes were ‘selectively disclosed by defendants to certain preferred investors’ rather than to the public generally,” Reuters reports.
“The analysts cut their estimates because a Facebook executive who knew the business was weak told them to,” according to Business Insider’s Henry Blodget. “The information about the estimate cut was then verbally conveyed to sophisticated institutional investors who were considering buying Facebook stock, but not to smaller investors … At worst, it's a violation of securities laws.”
Meanwhile, SEC Chairman Mary Schapiro said Tuesday that her agency would examine "issues" surrounding the IPO, The Wall Street Journal reports.
WSJ also blames Facebook’s botched IPO a last-minute decision by CFO David Ebersman to increase the number of shares the company would offer investors by 25%. “That decision by the 41-year-old Facebook executive may have doomed any real chance the social-networking company had that its stock would jump on its first day of trading -- a hallmark of successful IPOs.”
“Increasing the size of the offering meant that typical buy-and-hold investment funds got more shares than they expected, so they were likely offloading their excess,” CNNMoney explains.
As such, “Facebook's stock continues to suck harder than a Northwestern University freshman on a 5-foot bong,” Gawker writes. “And the fallout from the most hyped IPO in history bursts not just the illusion that Facebook isactually worth $100 billion, but the idea that Facebook is different than any other corporation hell-bent on making as much money as possible for a handful of very wealthy people.”
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