Insiders Warned on Facebook IPO, Regulators Launch Investigation

Only big investors were tipped off to revised revenue forecast
By Rob Quinn,  Newser Staff
Posted May 23, 2012 1:48 AM CDT
Updated May 23, 2012 7:10 AM CDT
Insiders Warned on Facebook IPO, Regulators Launch Investigation
The animated facade of the Nasdaq MarketSite welcomes the Facebook IPO Friday.   (AP Photo/Richard Drew)

Facebook's IPO is looking more disastrous by the day. Regulators are now probing reports that underwriter Morgan Stanley and other banks cut their revenue forecasts for the company just days before the IPO—but only advised major clients of the change. Insiders believe the revised forecast, which smaller investors were not advised of, contributed to the weak performance of Facebook shares, which finished more than 18% below the IPO price yesterday, costing investors close to $40 billion, Reuters reports. Regulators in Massachusetts have subpoenaed chief underwriter Morgan Stanley, and the SEC is reviewing the allegations

The forecasts were cut after a tipoff from a Facebook exec, according to Business Insider, which notes that such "selective disclosure" is grossly unfair to investors at best and a violation of securities laws at worst. "There is no debating this is a misadventure of epic proportions," a Greencrest Capital analyst tells CBS. "This was supposed to be the chance to restore the public's faith in the public markets and in Wall Street," he says. "And instead, it's been a reminder of everything people suspected, feared, or hated about the public markets and Wall Street." (More Morgan Stanley stories.)

Get the news faster.
Tap to install our app.
Install the Newser News app
in two easy steps:
1. Tap in your navigation bar.
2. Tap to Add to Home Screen.