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Regulators Eye Facebook, Morgan Stanley for Messy IPO


Unhappy investors in Facebook might get some satisfaction. Regulators have turned their eye on the social networking company as well as lead underwriter Morgan Stanley for the messy stock debut on Friday, May 18.

Often when a stock takes a turn for the worst, investors really don’t have anyone to blame but themselves for the gamble, but that’s not the case for Facebook investors. Regulators have turned their eye on the social networking company as well as leader underwriter Morgan Stanley for the messy stock debut on Friday, May 18.

After dealing with technical difficulties on the Nasdaq, Facebook has watched its stock take a rollercoaster ride. Initially, the price went up to $45, but then plunged and closed at $31 on Monday. On Wednesday, the stock took a slight upward turn and closed the day at $32, but it is still far below its original $38 offering price.

Right now it is almost impossible to short Facebook, so investors are seeking related vehicles, such as closed-end funds that own pre-IPO shares, to bet against, according to Reuters.

Morgan Stanley


Morgan Stanley

" followed the same procedures for the offering that it follows for all IPOs," spokesman Pen Pendleton said in a statement. "These procedures are in compliance with all applicable regulations."

Investors are unhappy with Nasdaq, with Facebook and, perhaps most of all, with Morgan Stanley. The lead underwriter reportedly cut Facebook’s projected revenue for the second quarter and for the year and selectively disseminated the information to major clients leaving many investors in the dark.

Reuters is reporting that investors could get some satisfaction though because the Financial Industry Regulatory Authority and the Securities and Exchange Commission both released information that they will be investigating what happened.

The Nasdaq OMX Group Inc.’s technical glitch that delayed trades and order confirmations has put the exchange in hot water too. While the company has set aside money to compensate customers, a suit was filed Tuesday that “seeks class-action status for anyone who lost money due to Nasdaq mishandling an order,” according to Reuters.

Not everyone is bearish on Facebook though, despite the difficulties of the last week. Needham & Company gave the social networking company a buy rating and a $40 price target because of how large the user base is and how much time spent online that Facebook accounts for.

The information contained in this article should not be construed as investment advice or as a solicitation to buy or sell any stock.

Read more: Regulators Probe Bank’s Role in Facebook IPO

Regulators, Investors Turn Up Heat Over Facebook IPO

Facebook’s Fizzle: What Happened to the Hyped IPO?

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Victor J. Dzau, MD, gives expert advice