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MAKE MONEY BLOG$~Facebook’s first week as a publicly-traded company has been anything but quiet, with lawsuits flying and fingers being pointed in the wake of a lackluster debut for the stock.
One class-action accusesMark Zuckerberg, the board and underwriters includingMorgan Stanley of sharing material information only with certain buyers of the company’s shares. Meanwhile, trading firms including Knight Capital have announced losses from the botched opening of the company’s shares May 18, which they are trying to recoup from Nasdaq, itself the target of at least one lawsuit.
Anthony Sabino, a securities litigator with Sabino & Sabino in New York City, said there are important issues raised by these lawsuits, even while warning that Facebook-watchers should “take them all with a grain of salt.”
The possibility that Morgan Stanley may have only notified certain investors justifiably raises the hackles of Facebook buyers and others – the investment bank’s white shoes “have mud all over them,” Sabino says – but the important element that should not be forgotten is what the botched IPO does to investors’ confidence in the market.
Individual investors have put up with a lot over the past half-decade. Many had their savings blown up by the market havoc wrought during the financial crisis and are wary of giving equities another chance. Meanwhile, every few weeks something comes up that shakes confidence further. This month aloneJPMorgan Chase disclosed a $2 billion trading lossthat rattled the market and then Facebook’s blockbuster IPO turned into a dud. The ongoing woes in Europe and the fresh memories of the 2008 crisis virtually assure that no investor can get too comfortable.
Through that lens, the Facebook IPO was a disappointment. Some have argued that it was a wild success for selling shareholders, who got the best possible price, and it may very well have been. But at what cost? None of this is to say that Facebook, its underwriters, or its shareholders have any obligation to do “what’s best for the market,” or that a more typical first-day pop for the social network would have been the “all-clear” sign for investors to start pouring money back into the stock market.
There is though, a lot to be said for confidence. And when events like these, whether the JPMorgan loss, the Facebook IPO, or anything else, sap that confidence and make investors feel like they are not on a level playing field, it ultimately is not good for anyone. A $100 billion offering that was widely-expected to make a big splash landed with a thud instead, and even worse there are questions of how the deal and subsequent trading was conducted.
Billionaire Mark Cuban, who revealed earlier this week that he picked up 150,000 shares of Facebook as a trade, articulated the point very well on his blog maverick site:
Say goodbye to the individual investor on Wall Street. Whatever positive impression they had of the IPO market and the stock market in general was just torched to the ground. When everyone you know associated with the stock market is telling you and the media is confirming that this could be a huge IPO that will make money for those lucky enough to get shares and the opposite happens, goodnight. All confidence in the stock is destroyed. Put your money in the bank or if you want to gamble, at least slot machines in Vegas pay out 98pct.
Shares of Facebook lost 98 cents to $32.05 Friday morning, down 3% on the session and 15.7% below the $38 IPO price. (See “The Truth About What Facebook Is Really Worth.”)
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source: forbes.com
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