Two top U.S. financial
regulators called for a review of the initial public offering of Facebook last
week, putting fresh pressure on the company, its embattled lead underwriter and
the Nasdaq.
After Friday's nearly flat close and
Monday's 11 percent plunge, Facebook shares were down 8 percent at $31.28 in
late afternoon trading on heavy volume of 88 million shares. At that price the
company has shed more than $17 billion in market capitalization from its
$38-per-share offering price last week.
Investors were still shaking their heads
over the botched opening trading of Facebook when Reuters reported late Monday
that the consumer Internet analyst at lead underwriter Morgan Stanley cut his
revenue forecasts for Facebook in the days before the offering, information
that may not have reached many investors before the stock was listed.
JPMorgan Chase and Goldman Sachs, which
were also underwriters on the deal, each revised their estimates during the road
show as well, according to sources familiar with the situation.
"The allegations, if true, are a
matter of regulatory concern" to the Financial Industry Regulatory
Authority and to the SEC, FINRA's Rick Ketchum told Reuters.
Securities and Exchange Commission
Chairman Mary Schapiro said investors should be confident in investing, but she
conceded there were questions to answer.
"I think there is a lot of reason to
have confidence in our markets and in the integrity of how they operate, but
there are issues that we need to look at specifically with respect to
Facebook," she told reporters as she exited a Senate Banking Committee
hearing.
With Facebook shares all but impossible to
sell short, investors have sought out almost any related vehicle to bet against
the social network. Over the past three trading days, prices plunged on two
closed-end funds that owned pre-IPO shares. Firsthand Technology Value Fund and
GSV Capital Corp both dropped more than 25 percent even though their Facebook
holdings make up only a small fraction of assets.
"Until investors can actually short
Facebook, they have to keep shorting other things that can give them some sort
of proxy for Facebook," said Thomas Vandeventer, manager of the
Tocqueville Opportunity Fund, which owns shares of both the battered closed-end
funds.
Brokers who over-ordered shares in the
expectation that supply would be limited continued to complain they received
too much stock to handle and were left in the dark about forecast changes.
One Morgan Stanley Smith Barney adviser
also cited the fact that institutional investors received information that
retail investors did not, calling it "a huge issue for the entire
industry....more
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