Facebook IPO turns messy lawsuit filed

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By DanTanner

In the biggest IPO of the year 2012 what do we have here ? A shareholder lawsuit and allegations of wrong doings withholding material information from investors. The Facebook’s own time line isn’t looking so great these days A hyped up IPO debut, gigantic publicity, massive news media take and a fast and furious lawsuit within last four trading days of trading. It doesn’t sound so good does it? The stock has declined substantially in the melee, thereby aggravating shareholders and Joe down the street as they see their investment diluted. Will they buy again from these people? Who knows.

The lawsuit stems from the information provided to selective shareholders like institutional traders and banks whereas the public wasn’t appraised of the materially important information. The IPO debut at 38 dollars per share and slammed to the ground at 31. The big institutions were privy to the revised numbers which also dampened their appetite for the stock and when the news emerged that public wasn’t informed by the lead underwriters and other Wall Street brokerage houses, the whole thing blew the kettle off the fire. The lawsuit is aimed at the CEO of Facebook and all the Underwriters as well.

Apart from the law suit Financial Industry Regulatory Authority and Securities and Exchange Commission were holding probes into as to what happened to the IPO deal and the circumstances surrounding the 16 billion dollar public offering.

Furthermore on May 23 rd 2012 Senate Banking Commission and House Financial Services committee were involved into this mess. There is enough confluence of regulatory bodies to tie this up for years to come and the consequences of these probes could further damage Face book’s brand and image.

The IPO was hyped beyond all reasonable standards. You couldn’t have missed it on your local TV stations when crowds started gathering at Times Square with Facebook logo and its CEO on the neon boards. This was by far the biggest IPO of the Internet so far and the hopes and dreams built into the a public mind as it would be something like Google or Linked-in. There was frenzy, demand and ferocity all built together.

But behind the show the lead underwriters were revising second quarter numbers and growth which could have materially changed the IPO price. That information went to selective institutional clients and not to the public.

Right before the IPO lead underwriters increased the shares offered by 25 percent. Experts say that Facebook insiders increased the amount they were selling at the time of IPO. Bono lead singer of U2 owned 40 million shares he bought for 90 million in 2009 and netted a cool 176 million in the offering. Peter Thiel of Paypal also made a handsome sum of 640 million on that same day. Mark Zuckerberg also sold 30 million shares at the same time. He still owns 533 million shares though or so.

Facebook has said they will defend these allegations and vowed to fight vigorously any such charges. How ever these investigative probes by FIRA and SEC can lead to some messy outlooks for Facebook in times to come. The perception of the stock is now questionable in the mind of investors who have been dealt one hand and once bitten they are twice shy. It remains to be seen how the stock performs in the next few months and how the news play out


Dantanner is freelance journalist and a derivatives trading specialist who frequently writes his syndicated columns on diverse financial topics

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