Perhaps we are all overreacting to the Facebook/Nasdaq/Morgan Stanley issue by calling it a scandal. But experience has taught many of us a valuable lesson; if it looks like a fish, swims like a fish, and smells like a fish, it’s probably a fish. As we just reported last hour, Investors in New York and California have filed lawsuits against Facebook and its underwriters for failing to disclose a revised financial forecast that revealed reduced income for Facebook throughout 2012. Also, Massachusetts state has subpoenaed the documents surrounding the revised forecast from a Morgan Stanley financial expert.
In an effort to pacify those who are conspiracy theorists, or just to indulge those pissed off about the whole thing, I thought it would be nice to offer some details about how the Facebook IPO scandal might have played out. First you have Facebook on tour promoting their IPO. Next, they learn that a shift in the number of users on mobile is hurting their potential for increased ad revenue. They react and update their SEC S-1 paperwork to reflect the threat.
The big banks get their financial experts working on how the mobile threat might actually diminish revenue for Facebook in the current financial quarter and beyond. The reports come out and reflect what Facebook already knows and told the SEC (and the general public if you’re prone to reading such documents). The big banks fail to release the financial reports because they are worried the bad press will hurt investor interest in the stock.
Big investors and Facebook insiders get word of the poor revenue forecast, decide to dump some of their shares in the IPO as well. Facebook, in the meantime Facebook decides to capitalize on the early overwhelming demand for shares and offers $50 million more and jacks up the price. On the first day of trading they dump a ton of shares all over the institutions offering them and keep just enough to make it look like they got burned too.
Finally, on opening day, they claim a big computer glitch occurred that kept them from recognizing that anybody had cancelled their order for Facebook shares. In the meantime, a couple of folks made a lot of money on what experts might be inclined to call, a “bad investment”.
Again, I am not saying any of this happened. It is just a conspiracy theory from someone who has to report on all these puzzle pieces. So that’s my disclaimer. I am not a Facebook insider nor do I have first hand knowledge of any of the events. The stories I link to however, are based on fact, and are real news.