The social network faced problems with Nasdaq’s handling of the IPO from the very beginning, including delayed launch from a stated 11.05am to 11.30am, and other technical issues. The situation today, however, runs deeper.
First, Facebook increased the number of shares in the initial offer from 337 to 421 million, then technical glitches prevented investors knowing if their trades had gone through the first day. This was followed by panic and confusion, with several potential buyers stepping back, and abnormally high trading volumes following through. Big investors got access to key information that was not available to all investors, leading to inquiries by Federal and state regulators, after Facebook advised analysts for underwriters to reduce revenue and earnings forecasts.
Douglas DePietro, managing director for sales trading and trading execution at Evercore Partners, told@CNNMoneyInvest that the current situation is “a day trader’s paradise right now. There’s high volatility and high volume.”
“Facebook right now is going for far more than what it’s worth, it’s like buying $1 for $1.98, it just doesn’t make sense at this price,” said Eddy Elfenbein, of Crossing Wall Street, cited by Reuters.
As Facebook and lead underwriter Morgan Stanley told analysts working for some of the main underwriters to lower their estimates ahead of the IPO, while leaving other investors in the dark, both Facebook and Morgan Stanley are now open to accusations of selective disclosure. The state of Massachusetts has already issued a subpoena to Morgan Stanley looking into this issue, while a Los Angeles law firm filed a lawsuit against Facebook and its underwriters alleging inadequate disclosure of key information. The Financial Industry Regulatory Authority also said that they will be looking into the matter.