Facebook, Wall Street and Shareholders: A Tale of Greed and Sorrow
Karen is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Wall Street, in the eyes of some, has become the undisputed bastion of greed and ethical misconduct, but the Facebook (NASDAQ: FB) IPO scandal has managed to drop that bar to a new low.
As usual, the insiders made a fortune. Founder and CEO Mark Zuckerberg dumped 30.2 million of his shares on the opening day of trading and walked away with a cool $1.13 BILLION dollars. Goldman Sachs (NYSE: GS), one of the IPO underwriters, sold 28.7 million of their shares for $1.09 billion. In addition, Morgan Stanley (NYSE: MS), JP Morgan Chase (NYSE: JPM), and Goldman Sachs, the three primary IPO underwriters, will proportionally split the lion’s share of the $175 million generated in underwriting fees between them.
But the IPO was rigged against the small investor well before last Friday’s opening bell rang. It’s been alleged that Mr. Zuckerberg tipped off the investment banks and a select group of major investors that Facebook revenues was just “a tad” overstated and that the revised figures were substantially lower. If the stock price manipulation allegations are true, these privileged insiders were prepared to jump the Facebook ship on Friday just as new investors were fighting to buy in. How’s that for stacking the deck?
Facebook has only been trading for a week but the carnage continues to pile up. At least two shareholder lawsuits have been filed against Mr. Zuckerberg and the underwriters based in part on the revenue insider information. The Securities and Exchange Commission, Financial Industry Regulatory Authority, the State of Massachusetts, the U.S. Senate Banking Committee and the House Financial Services Committee have already begun their own investigation into these irregularities. Currently, Facebook is in talks with the NYSE to move the company to that exchange, no doubt much to the relief of the Nasdaq.
But no amount of lawsuits or agency investigations will undo the permanent damage that has been done. Small investors, believing the analysts’ reports and Facebook hype, are left holding the proverbial bag. The stock price has been pegged to eventually settle at the $17 to $25 price range, and if this prediction holds true, millions of small investors will be unable to recoup their losses, let alone break even. The shareholder lawsuits may ultimately provide some relief for the monetary damages. But making an allegation and proving it is two very different sides of the legal coin. It can take years for a lawsuit to wind through the courts and even if the court does find in favor of the shareholders, the defendants can always appeal that decision. Shareholders certainly shouldn’t look to the courts for relief any time soon. But what really hurts is that while the small investor can do little more than sit and wait and hope, the lucky insiders walk away scot-free to enjoy their millions until the day of reckoning, a day which may never come. No matter how you slice it, this just isn’t right.
Mr. Zuckerberg is no doubt quite proud of creating Facebook and bringing it to fruition as a publically traded company. But the Facebook IPO scandal has coined a new term to describe someone being taken advantage of by another: Zuckered. And I just don’t think he’s proud about that.
kprogers has no positions in the stocks mentioned above. The Motley Fool owns shares of Facebook and JPMorgan Chase & Co. Motley Fool newsletter services recommend Goldman Sachs Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.