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US Regulators Looking at Leadup to Facebook IPO

Facebook IPO Results in Lawsuit; Investigationi
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Carolyn Presutti
May 24, 2012 12:37 AM
The recent, initial public offering of Facebook stock thrilled many traders on Wall Street and investors around the world. But now, a regulatory investigation and a major lawsuit hang over that publicized public offering. VOA's Carolyn Presutti has the details.
Facebook IPO Results in Lawsuit; Investigation
WASHINGTON - The recent, initial public offering of Facebook stock thrilled many traders on Wall Street and investors around the world.  But after an intra-day spurt from $38 a share to over $40 a share on the opening day, the stock has dropped to just over $30.   
 
Now, a regulatory investigation and a major lawsuit hang over that publicized public offering.  
 
Facebook's much celebrated, initial public offering made global news.  But some investors didn't see the mammoth social network as a money maker.
 
U.S. lawmakers are also looking into issues with Facebook's initial public offering. 
 
The Senate Banking Committee says its staff will meet with Facebook officials, regulators and other stakeholders.  A spokeswoman for the House Financial Services Committee says staff members are being briefed on the issue and the topic will likely be raised in hearings. 
 
The Securities and Exchange Commission and the Financial Industry Regulatory Authority, Wall Street's investigative arm, have also called for a review of Facebook's IPO. 
"Everyone I know does not buy anything off of Facebook," said investor Jennifer Parker. "Those little click ads on the side.  Basically, I just click them off, and I'm like, 'uninterested, uninterested.'"
 
Turns out, Facebook knew that.  More and more mobile device users were ignoring ads.  So, Facebook advised underwriters to lower forecasts.  Lead underwriter Morgan Stanley did, but allegedly only shared those revised estimates with some investors.  
 
Jason Tanz, with the magazine Wired, said, "If people with more power and money to invest got a different set of facts and information and analysis than the average investor, then yes, that's troubling."
 
Jeff Sica, founder and chief investment officer of Sica Wealth Management, says the heat is really on the underwriters, who deny doing anything wrong. 
 
"The lawsuits are very indicative of investors' outright negative opinion of some of the underwriters like Morgan Stanley and Goldman Sachs.  Looking at it from the standpoint of how the retail investor feels about whether or not they can trust these institutions again is going to have very long lasting effects," he said. 
 
Troubling too, is a lawsuit against NASDAQ, the American stock exchange that handled Facebook's IPO.  Lead plantiff Philip Goldberg claims investors like him lost money because NASDAQ delayed or mishandled their stock orders.
 
Goldberg runs his own business from inside his Maryland condominium.  His attorney won't permit him to talk on camera, but Goldberg says he's a typical investor.
 
"The whole Facebook IPO has been a mess," said Patrick Carroll, the founder of Wealth Strategies Group, a financial consulting firm. He never recommended Facebook to his clients in the first place.
 
"I wouldn't be buying Facebook at any price at this point.  I'd wait to see what happened going forward, coming out with the regulatory issues," he said. 
 
Facebook is not commenting.  And, Morgan Stanley says it followed the same procedures with Facebook as it does with all IPOs.

Bernard Shusman contribted to this report. 

Carolyn Presutti

Carolyn Presutti is an Emmy and Silver World Medal award winning television correspondent who works out of VOA’s Washington headquarters.   She has also won numerous Associated Press awards and a Clarion for her coverage of The Syrian Medical Crisis, Haiti, The Boston Marathon Bombing, Presidential Politics, The Southern Economy, and The 9/11 Bombing Anniversary.  In 2013, Carolyn aired exclusive stories on the Asiana plane crash and was named VOA’s chief reporter with Google Glass.

You can follow Carolyn on Twitter at CarolynVOA, on Google Plus and Facebook.

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