Regulators, investors turn up heat over Facebook IPO

Wed May 23, 2012 3:55pm EDT
 
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By Suzanne Barlyn and Ryan Vlastelica

(Reuters) - Two top U.S. financial regulators said on Tuesday the issues around the initial public offering of Facebook should be reviewed, putting fresh pressure on the company, its lead underwriter, Morgan Stanley, and the Nasdaq stock exchange.

Facebook shares closed 8.9 percent lower at $31, following an 11 percent plunge on Monday. At that price the company has shed more than $19 billion in market capitalization from its $38-per-share offering price last week.

Reuters reported late Monday that the consumer Internet analyst at lead underwriter Morgan Stanley cut his revenue forecasts for Facebook in the days before the offering, information that was not disclosed to the market before the stock was listed.

Facebook itself had urged analysts working for some of the 33 underwriters to lower their estimates ahead of the IPO, according to four sources with direct knowledge of the conversations that were held during the week prior to the IPO.

"Facebook changed the numbers. They didn't forecast their business right and they changed their numbers and told analysts," said another source at one of the underwriters with knowledge of the situation

The company had issued a revised prospectus on May 9 in which it cautioned about the possible negative impact of Facebook users shifting to mobile platforms, but the vague language fell well short of an explicit warning of lower revenues or earnings. Facebook has yet to make much revenue from mobile advertising.

The disclosure of lower forecasts to certain big institutional investors left both Facebook and Morgan Stanley open to accusations of selective disclosure. Many smaller investors who bought Facebook shares in the IPO were left in the dark.

A Facebook spokesman declined to comment.   Continued...

 
The Facebook logo is seen on a screen inside at the Nasdaq Marketsite in New York in this May 18, 2012, file photo. REUTERS/Shannon Stapleton/Files