Facebook Inc. (FB-Q31.950.953.06%) chief executive officer Mark Zuckerberg, and several banks led by Morgan Stanley(MS-N13.16-0.15-1.13%) were sued by shareholders, who claimed the defendants hid the social networking leader’s weakened growth forecasts ahead of its $16-billion initial public offering.
The defendants were accused of concealing from investors during the IPO marketing process “a severe and pronounced reduction” in Facebook revenue growth forecasts, resulting from increased use of its app or website through mobile devices.
FACEBOOK STOCK COLLAPSE CONTRIBUTES TO MISTRUST OF WALL STREET
Facebook shares are melting down again on Tuesday, and though the rest of the stock market doesn't seem to care, it should: This episode will likely further cement Main Street's hatred and distrust of Wall Street.
That's because the Facebook IPO had examples of pretty much everything that is wrong with the stock market today. Media and analyst cheerleading? Check. The destructive influence of high-speed trading? Check. A system built for insiders to profit while retail investors pick up scraps? Duh.
"This constantly erodes the confidence of the average investor," said Joseph Saluzzi, co-head of stock trading at Themis Trading. "It's why we see money coming out week after week from stock mutual funds. People are tired, frustrated with it."
Facebook's stock price was down Tuesday more than 4 percent to less than $33 a share. After months of hype leading up to the social network's initial public offering, the stock is down 14 percent from its IPO price of $38 and nearly 28 percent from its $45 peak on Friday, its first disastrous day of trading. The company has lost about $15 billion in artificially inflated paper market value in less than three days. Update:Things got a lot uglier after we filed this post: The stock ended trading Tuesday down nearly 9 percent at $31. That's an 18 percent decline from the IPO price and a 31 percent drop from its peak price on Friday.
Right out of the gate on that first day, there were problems with Nasdaq's handling of the IPO. The exchange was swamped by a flood of orders, including a flurry of canceled orders, from high-frequency trading robots, the Financial Times reported. The technical hangups delayed the start of trading by about half an hour and left many traders in the dark about whether their orders to buy shares had been accepted.
Frightened and confused, potential buyers stepped back, forcing underwriter Morgan Stanley to jump into the market and keep Facebook stock afloat at $38. Since then, Morgan Stanley has apparently either given up supporting the stock or has run out of the dry powder to save it.
In the run-up to Facebook's $16 billion IPO, Morgan Stanley, the lead underwriter on the deal, unexpectedly delivered some negative news to major clients: The bank's consumer Internet analyst, Scott Devitt, was reducing his revenue forecasts for the company.