|  | | 2012 News and Press Releases | | |
HEADLINE NEWS:
Facebook IPO Debacle Triggers Legal Debate
Michael J. Moore, Lee Spears and Douglas MacMillan
Bloomberg. May 24, 2012
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EXCERPT: Facebook Inc. (FB)’s initial public offering has triggered allegations the social network and banks led by Morgan Stanley selectively disclosed crucial information to investors. Securities law experts say it’s not clear the firms did anything wrong. At issue is whether Facebook gave non-public, material information to analysts that was then shared with select investors in the form of lower earnings projections. The answer lies in the evidence uncovered and the interpretation of Regulation FD, a U.S. Securities Exchange and Commission rule that requires public disclosure of important information. “This is a gray area,” Tamar Frankel, a professor at Boston University School of Law, said in a telephone interview. “There are a zillion rules, but there isn’t a rule that addresses precisely this.” Facebook amended its IPO filing on May 9, about a week before the $16 billion sale, to say growth in advertising had failed to keep up with user gains. It then contacted more than 20 analysts, including those at underwriters Morgan Stanley, Goldman Sachs Group Inc. (GS) and JPMorgan Chase & Co. (JPM), to guide them toward the lower end of its second-quarter sales estimate, according to a person with knowledge of the matter. A day after that filing, the analysts called up some investor clients to communicate their revised estimates for sales and profit, said people with knowledge of the process. Facebook’s stock has dropped 16 percent since the initial share sale, spurring shareholder suits from New York to California. They allege that Facebook and its underwriters misled investors by failing to disclose the figures to a wider audience. Information is material if it would probably affect a company’s share price, if known. |
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