Facebook Backers Helped Short Sellers

Morgan Stanley adjusting thousands of first-day trades
By Rob Quinn,  Newser Staff
Posted May 25, 2012 6:25 AM CDT
Facebook Backers Helped Short Sellers
Facebook briefly hit $45 on its first day of trading before starting a long slide.   (AP Photo/Richard Drew)

Some traders at the underwriters of Facebook's bungled IPO were busy aiding short sellers who bet the stock would drop in the days after its debut, the Wall Street Journal finds. Insiders say traders at JPMorgan and Goldman Sachs were loaning out the shares hedge funds needed to bet against Facebook, even as chief underwriter Morgan Stanley (which refused to lend shares) was scrambling to prop up the price. Short sales—in which investors sell borrowed stock, hoping to buy it back at a lower price later and return that cheaper stock to the lender—accounted for at least a quarter of Facebook's first-day trades and 36% of trades on Wednesday.

Morgan Stanley, meanwhile, says it plans to adjust thousands of trades affected by first-day glitches, Reuters reports. The shares briefly hit $45, but unprocessed orders to sell at $43 or higher will be settled at $42.99, the bank says, stressing that the move puts its clients first. The bank also plans to compensate some retail investors who overpaid when they bought shares on Friday, a source tells the AP. (Read more Morgan Stanley stories.)

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