WSJ: Morgan Stanley screwed the public in Facebook IPO

A new report by The Wall Street Journal has named the companies that took advantage of inside information before Facebook's stock went public last Friday.

According to the report, as seen on Gizmodo, some key companies got an inside warning on Facebook's value not being worth its set IPO stock price before trading began. The article states that Morgan Stanley, one of the banks that served as an underwriter for Facebook's IPO, tipped the companies after receiving information from a Facebook executive.

Capital Research & Management wanted to buy into the Facebook Inc. initial public offering. But days before the IPO, an underwriting bank on the deal warned the big investment firm about Facebook's dimming revenue prospects.

The Los Angeles firm, armed with information from a May 11 "roadshow" meeting with underwriters and Facebook, along with similar estimates of its own, slashed the number of shares it intended to buy. The night before trading began, a Capital Research manager told a banker at Morgan Stanley, the lead underwriter, that the deal's pricing was "ridiculous," according to a person familiar with the situation.

... Fidelity Investments was among big clients that were told by analysts or bank sales staff of the declining Facebook financial picture, people familiar with the matter say. The nation's third-largest mutual fund firm expressed frustration to Morgan Stanley about Facebook valuations based on the dimming prospects for the company, the people say.

Essentially, Morgan Stanley decided to warn several of the of large companies that wanted in on the Facebook IPO based on information that wasn't available to the public. By telling these companies the Facebook stock's pricing wasn't accurate, Morgan Stanley created a lower demand for Facebook stock at the price it was listed. This may have allowed some of these companies to buy the stock when it hit a lower price.

The public, unaware of this knowledge, created an initial demand for Facebook stock that caused the price to increase to $45 before plummeting.

Via: Gizmodo
Source: The Wall Street Journal

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41 Comments

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Who in their right mind would've thought it was worth that much anyway? It was obviously over inflated media hype all the way.

Personally,
I hope it TOTALLY tanks and they go more than flat broke!

im sorry but the shares started 20% higher then there profits were, so it has to drop 20% before it would normalize. If you were stupid enough to buy the shares then its your own fault, it was all a hype

Arrogant Mark "I'm the CEO bitch" Zuckerberg overvalued his company and Morgan warned their clients? Who would have thought...

Seriously, I saw so many people the last few weeks who said: "I want to invest in Facebook but I don't know how to buy shares or what this IPO actually means". If you don't know anything about it, invest a litlle, lose a little, learn from it. Don't complain afterwards and say the "little guy" got kicked down again by the almighty rich banker

XerXis said,
Arrogant Mark "I'm the CEO bitch" Zuckerberg overvalued his company and Morgan warned their clients? Who would have thought...

They only warned some of their clients not all and this is why the law suit is being brought against them the rich got fair warning whilst the little person (mom & pop) investors got no warning and lost alot of money

Athlonite said,

They only warned some of their clients not all and this is why the law suit is being brought against them the rich got fair warning whilst the little person (mom & pop) investors got no warning and lost alot of money

+1

...also those people were so deluded by the tech media (Gizmodo, Neowin and some newspapers) that they all should be ashamed of talking about MONEY other then their business: tech journalism.


Sorry but anyone who honestly thought Facebook was worth that kind of money should have their head examined, I did not need insider info to know it was a BAD investment at the IPO price, give it a few weeks and it should settle in around $10-15 a share which is where the IPO should have been.

Zippo7 said,
Sorry but anyone who honestly thought Facebook was worth that kind of money should have their head examined, I did not need insider info to know it was a BAD investment at the IPO price, give it a few weeks and it should settle in around $10-15 a share which is where the IPO should have been.

^ this!

Seriously - pinning this on bankers is just an easy way out. If a company was set to trade at 100x of it's earnings... well, there is something wrong with that, much more fundamentally than anything else. That is not to say that Morgan did the right thing, but it is expected they'd bail out their buddies and screw everyone else. Come on - don't act surprised now.

Whhhhaaaat? GTFO! No way. Investment bankers are the most honest folks out there, second to maybe lawyers and perhaps insurance salesmen. I find this article very hard to believe.

Yeah, its not like they did some atrocious crime like stealing bottle of Dom Perignon on the way to the bank while laughing. Public apology should be enough for them. On the other hand, money is the root of all evil and these good Samaritans saved public from some significant amount of evil. I guess they took example from Tal Rasha who chose to use his own body as a prison for the Prime Evil.

The over valuation (or perceived over valuation) of the stock isn't the issue here. The issue is that MS held back information. Even if doing so isn't an SEC rules violation it is at least an ethics issue - big surprise there, right?

As positive as I try to be I just continue to see the dark side of these large banks/investment firms. While sometimes they get a little more than a slap on the wrist they rarely are the "losers" in these situations.

marinejld said,

As positive as I try to be I just continue to see the dark side of these large banks/investment firms. While sometimes they get a little more than a slap on the wrist they rarely are the "losers" in these situations.

Why would they? They own our Governments, they control the world.

The fact that it was overvalued was not insider information. Perhaps the fact that it was extremely overvalued was insider information, but seriously, when in doubt, just don't buy it.

I'd like to think there is going to be some punishment dished out, but you know there won't be. The little guy gets kicked while he's down again.

yeoo_andy_ni said,
I'd like to think there is going to be some punishment dished out, but you know there won't be. The little guy gets kicked while he's down again.

People will lose their licenses and jobs over this. This is on a level of illegal that wall street never puts up with. This has nothing to do with big guy/little guy mentality. There are entire acts of congress that exist to punish this very thing.

ILikeTobacco said,

People will lose their licenses and jobs over this. This is on a level of illegal that wall street never puts up with. This has nothing to do with big guy/little guy mentality. There are entire acts of congress that exist to punish this very thing.

Agreed. I look forward to seeing this play out. To think they thought they would get away with it...

M_Lyons10 said,

Agreed. I look forward to seeing this play out. To think they thought they would get away with it...


I suspect the companies involved will face fines but will avoid further punishment by having a scapegoat to pin the fault on. That person will never be allowed near a job like that again and efficiently make their eduction in the stock markets useless and unemployable. Sucks to be that guy.

ILikeTobacco said,

I suspect the companies involved will face fines but will avoid further punishment by having a scapegoat to pin the fault on. That person will never be allowed near a job like that again and efficiently make their eduction in the stock markets useless and unemployable. Sucks to be that guy.

Pretty much, but the scapegoat will be hired as "a consultant" somewhere... sooner or later...

yeoo_andy_ni said,
I'd like to think there is going to be some punishment dished out, but you know there won't be. The little guy gets kicked while he's down again.

It's funny how the little guy always thinks he's a victim. No single raindrop ever thinks it's responsible for the flood.

Skwerl said,

It's funny how the little guy always thinks he's a victim. No single raindrop ever thinks it's responsible for the flood.

That's because he IS the victim! The seriously rich play in the sunshine 24/7 all year round even when the rest of us are being ****ed on by thunderclouds and when they get sunburn they just make us sell our umbrellas to pay for their sun cream. If you think otherwise then you are either 1. Stupid or 2. One of them.

To be fair, anyone that did their homework just on Neowin alone would of see all the warnings that it was gonna crash and burn after the first day.

Stopped me buying any anyway

Shikaka said,
To be fair, anyone that did their homework just on Neowin alone would of see all the warnings that it was gonna crash and burn after the first day.

Stopped me buying any anyway

Exactly - anyone who went and bought a load of facebook shares without any knowledge pretty much had it coming to them. It wasn't a secret that many investors thought the price was too high.

lt8480 said,

Exactly - anyone who went and bought a load of facebook shares without any knowledge pretty much had it coming to them. It wasn't a secret that many investors thought the price was too high.

i bet steve woz is realy ****ed about investing his cash in fb.

an example should be made of those involved in this masiv balls up.
put them in jail and ban them from tradeing for 5 years. or for ever

Shikaka said,
To be fair, anyone that did their homework just on Neowin alone would of see all the warnings that it was gonna crash and burn after the first day.

Stopped me buying any anyway

You're welcome

xSuRgEx said,
i bet steve woz is realy ****ed about investing his cash in fb.

No one who invested before the stock's IPO price was announced lost anything. None of the employees that got shares lost anything.

Ad Man Gamer said,
so what are we looking at here? prison? a fine? What is the punishment for collusion when it comes to the stock market?

Massive jail time. If it can be proven.

wall street once agains proves it is a big casino designed to make the richer richer and screw the public whenever it can.

neonspark said,
wall street once agains proves it is a big casino designed to make the richer richer and screw the public whenever it can.

I'd say this was more Facebook. They would have been the ones pushing for a higher starting price and they would have been the ones publishing their profit predictions and such...

Advancer said,
So in other words us common people always gets screwed, and the rich just gets away with anything.

In other words............. Business as usual......................

Advancer said,
So in other words us common people always gets screwed, and the rich just gets away with anything.

If the common people had researched it or read any of the advice from notable financial analysts freely available on the web, they wouldn't have gotten screwed.

Skwerl said,

If the common people had researched it or read any of the advice from notable financial analysts freely available on the web, they wouldn't have gotten screwed.

+1

...also those people were so deluded by the tech media (Gizmodo, Neowin and some newspapers) that they all should be ashamed of talking about MONEY other then their business: tech journalism.

ps: Post belongs here.

Skwerl said,

If the common people had researched it or read any of the advice from notable financial analysts freely available on the web, they wouldn't have gotten screwed.

Regardless, withholding information , critical ones even worse, is a crime and surely does not help investors in making their decisions.
Said that I agree that personally I would have never bought FB shares even based on the available information. Walking around Baghdad and take a coffee would be less risky than investing in a company with a projected P/E around 100; and doing it in 2012 not 1999...............................

Fools and their money are soon parted. Anyone with half a brain could have seen a company valued at over 100 times earnings was WAS at least 80% overpriced.

Also facebook has peaked so its all downhill from here.

Good to see the smarty pants investment banks and hedge funds that thought they'd make a killing (at the expense of the common people), instead got a haircut!