EthicsBite™

As we all know, the Facebook IPO was a huge story. But only a few days later an even bigger story is erupting.

First, there were issues about the handling of the IPO by the Nasdaq. I personally didn’t read anything into that other than possible technical and management problems handling the biggest IPO of all time together with the many people who wanted to get in on the first day’s activity. I also thought the valuation was pricey, but I am not a financial analyst and haven’t done any substantive research on the stock valuation. And that could have been all there was to the story.

But now new threads have emerged related to the handling of the IPO.

Shortly after 7 pm Tuesday (May 22), Reuters reported that Morgan Stanley had issued a revised downward forecast on the company’s revenue just prior to the actual IPO. Morgan Stanley was the lead underwriter on the deal and it appears that they informed some investors but not the general public.

Also this evening (May 22) The Wall Street Journal online edition reported that Facebook’s CFO had requested a 25% increase in the number of shares to be offered to investors. That’s a significant increase in the offering and a decision that was made only a few days in advance of the scheduled IPO. Paste that news on top of the Reuters story and the IPO “calf scramble” and you have the makings for an SEC investigation.

Mary Schapiro, head of the SEC, has just recently been quoted as indicating there are “issues that we need to look at specifically with respect to Facebook,” and the Massachusetts Secretary of the Commonwealth has issued a subpoena to Morgan Stanley according to a Reuters report.

Couple all of that with the fallback in the share price the last 2 days and you can almost see the lawyers circling.