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back to article Facebook underwriters accused of hiding forecast

Reuters is airing accusations which, if true, would cast the Facebook IPO process in a very poor light indeed. The news service claims that underwriters Morgan Stanley cut its revenue forecasts for The Social NetworkTM but withheld the information from all but a privileged few. The allegations are detailed in this Reuters …

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Megaphone

No shit Sherlock

You wouldn't expect them to publish the truth given that anybody over the mental age of 6 can see this floatation was hugely over-valued.

Wonder if they will all end up like Alan Stamford.

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Mushroom

Re: No shit Sherlock

So those in the know got in first, bought stock, then sold quickly as the share price went up to unsuspecting idiots who got in after the first round and bought shares loosing significant value.

This happened overnight. Is this insider trading? Or was thisnanlegal way to stuff unsuspecting fools.

I say fool because some people have a very short memory span, I still remember the dot.com bubble bursting.

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Re: Is this legal

All perfectly legal. Of course, going public is such a messy way of stealing other people's money. Fortunately the new JOBS act means that future Facebooks can stay private for much longer, sucking up money without any tedious obligations to disclose things like earnings.

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Flame

Re: No shit Sherlock

The INSIDERS got paid in day 1 & 2 ... by the astonishing degree of sucker-dom who the likes of P.T. Barnum may never envisioned. Out of the gate, NASDQ couldn't process all the sell and option contracts!

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Anyone in the private sector who bought into Facebook at IPO ...

... is an idiot of the first water, who clearly knows nothing about investing. I'd play 'em a sad song on the world's tiniest violin, if I could be arsed. Fscking morons.

The major institutions involved are going to get raked over the coals ... hopefully.

Hint: If it seems too good to be true ... it always is.

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FAIL

Re: Anyone in the private sector who bought into Facebook at IPO ...

Perhaps - I certainly thought it was grossly over-valued.

But a free market depends on the free availability of information. This would appear to be anything but that.

You can't expect people to make sensible decisions without access to all the information, as no doubt a court case will prove at some point.

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@Mike Street (was: Re: Anyone in the private sector who bought into Facebook at IPO ... )

Even without "all the information", the only "sensible decision" was to stay well clear of the facebook IPO. To suggest otherwise displays mind boggling ignorance.

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Re: @Mike Street (was: Anyone in the private sector who bought into Facebook at IPO ... )

the absence of the information should have been enough to worry people. The problem is the 'market' isn't as smart as people believe. A lot of it works off fear and herd mentality. Plus it is often our money not theirs they are playing with and when it all goes to shit it's our money that bails them out while they take a mild hit to their bonuses for a month or two.

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Anonymous Coward

Re: @Mike Street (was: Anyone in the private sector who bought into Facebook at IPO ... )

Or the 'bigger idiot' methodology. Probably 90% of the people who bought Facebook in the IPO knew damn well it was overpriced, but figured they'd find an even bigger idiot to sell it on to before it tanked...

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Anonymous Coward

Re: Anyone in the private sector who bought into Facebook at IPO ...

> But a free market depends on the free availability of information.

No it doesn't. Morgan Stanley produces many reports on different companies and sells this information to clients.

They took the publicly available revised prospectus from Facebook and performed their own analysis on it. They had no obligation to disseminate this analysis to anybody they did not wish to as it only used publicly available information.

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Re: Anyone in the private sector who bought into Facebook at IPO ...

The thing about the stock markets is that everyone assumes it's just like buying things at a - well, market.

The people who bought Facebook shares probably KNEW it was going to end up lower. But if you watched, it peaked higher than they were initially paying. Thus, simple maths tells you that, in that time, you can make a very quick profit. They sensible ones probably were never INTENDING to hold onto those shares for more than a few minutes, and sell them as soon as the graph's gradient flattened. In doing so, they would not only make a profit but also cause the price to dip later (when everyone gets suspicious that these "wonderful new shares" are being sold all of a sudden by people who've only just bought them).

The profit on a share might only be a dollar or two. But buy a few million shares and that's a few million dollars. In the space of a day, if you know what you're doing, that's not a bad way to earn a living. Who cares what happens to it after you've cashed out and made a few million? Who cares that it's over-valued? If they thought they could make a profit and did, they were clever and (now) richer. If they thought they could make a profit and didn't, I have no sympathy particularly. If they didn't think they could make a profit, again, I have no sympathy for them buying in the first place.

Not everyone buys shares to hold onto forever until they slowly creep up to something above the original price (and those that did won't be worried about a few percent drop in value until it's a few years down the line and still hasn't recovered). Not everyone buys shares caring at all about what the company is, does, or makes, so long as they think there's enough people after them to raise the price quickly so they can dump them even quicker. Hell, a lot of money is made on the stock market by "betting" that a share price will sink very rapidly.

Playing the stock markets isn't like being sent on The Apprentice trip down to the local cash and carry. You can make money based on what OTHERS will do, and even by what others you expect to crash and burn (even your rivals at times!). The notion that everyone on the markets are there to make money in long-term, sound investment and never make a mistake is as ridiculous as assuming that someone who could make a million dollars in a few minutes won't take the opportunity to do so (legitimately or not).

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Anonymous Coward

Re: Anyone in the private sector who bought into Facebook at IPO ...

> The thing about the stock markets is that everyone assumes....

The other thing is that many funds have a legal requirement to own shares in the top companies (I'm basing this on the UK but the US won't be that different).

Many funds (some pension funds for example) must hold a minimum percentage of their funds in FTSE100/250 companies and hold them in proportion to the value of the company. This is meant as a safeguard to protect the funds as the top companies are seen as the most stable in the long term.

There are also tracker funds that hold shares in a company in proportion to the companies value. They will have bought shares based purely on Facebooks valuation.

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Pirate

Re: a free market depends on the free availability of information

No - a PERFECT market depends on the free availability of information.

I don't think those clever traders want a PERFECT market.

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Pirate

Re: Anyone in the private sector who bought into Facebook at IPO ...

The inefficiencies in capital markets can be measured by the degree of misinformation. Econ 101. It's sort of an 'Us v. Them' issue.

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Holmes

Re: a free market depends on the free availability of information

You beat me to it Liz...

I also wonder was the late revised forecast from Morgan Stanley just an arse covering exercise. JPMorgan and those pinnacles of financial probity Goldman Sachs also updated their predictions about FarceBook.

What would be interesting to see is if any of these market makers have gone short on the FarceBook stock. I mean, what are the chances of a company like Goldman Sachs taking a short position on their own financial products, that would never happen, would it?????????

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Anonymous Coward

Re: Anyone in the private sector who bought into Facebook at IPO ...

> "...access to all the information..."

but wasn't this "information" just Morgan Stanley's revised opinion that the stock was probably over-valued? Surely that was public knowledge, to those who cared to listen.

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Facepalm

Re: @Mike Street (was: Anyone in the private sector who bought into Facebook at IPO ... )

In that case the 90% who knew it was overpriced are true idiots if they bought it hoping to sell on to even bigger idiots later on. If they were quite certain that the stock would drop from the initial valuation they should have sold it short.

I also thought that FB shares weren't worth the IPO price, but even then I wasn't THAT sure that I would bet a few $k on it... and I especially didn't think they would tank so fast so soon (actually the fact that they did tank so fast so soon shows that not a lot of people really believed the hype)

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Re: Anyone in the private sector who bought into Facebook at IPO ...

A FREE market doesn't depend on perfect availability of information, but a FAIR market does depend exactly on that. Adam Smith's notion of a market that automatically finds the most efficient way of doing things is build on the idea of open information.

In practice market are less efficient than they could be because people some people with more knowledge than others use that knowledge to profit from others' ignorance. In some cases it's the fault of uninformed consumers that they didn't bother to find information that's publically available, in others it's the people having access to private information who profit from this to the detriment of people who could never have known that information because it wasn't public (aka insider trading)

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Anonymous Coward

Re: a free market depends on the free availability of information

"I don't think those clever traders want a PERFECT market."

Clever means devious!

Pursuit of cash to the detriment of others makes you no better than a peado or rapist!

Greed beerstains traders are the cause of the financial meltdown we are all suffering from.

Immoral and legal. Well done.

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Anonymous Coward

Re: Anyone in the private sector who bought into Facebook at IPO ...

"You can't expect people to make sensible decisions without access to all the information,"

But the majority of people do exactley that!

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Look on the bright side

At the rate it's going it should be valued fairly by the end of the week for a buy in for anyone who is interested. That is, of course, unless you want to wait another week when it should become a decent buy. Let's see assuming a drop of 7% per day for ten days, that's about $18.50, hmmm better wait an extra few days just to be sure.

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Re: Look on the bright side

FB does have value, it will make money (amazon took years to make real money) but I fell its potential and longevity don't warrant a $100bn valuation, closer to $20-$30bn. Still a significant sum of money, just more realistic. Apple is another company that is overvalued but still very valuable. Apple is a $520bn company on market cap with somewhere around $100bn in various assets and cash. It's probably only overvalued by 10-15% in the long term. Apple has more longevity than FB, although we have seen companies fade like MS and Intel. Both still strong by MS used to be huge before the bubble burst.

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FAIL

Re: Look on the bright side

FB makes... hmm, nothing. It's an vehicle for *advertising*. I have no intention of sharing my private details just so that i can be targeted by commercial organisations.

Apple, Microsoft and Intel *all* make real products, something FB doesn't .

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Anonymous Coward

Re: Look on the bright side

No bright side here. All the companies you named have tangible assets in either merchandisable stock or facilities, they also sell stuff, products and goods and produce stuff

Facebooks value is purely a directory of names and the possibility of a market to advertise to.

Their tangible asset is a server room, they neither produce, sell or make stuff.

Eventually people will get wise to the adverts and even celebrities using the medium to promote stuff they have been given for free. Most people will get fed up with the ads and a developer will produce an ad blocker specifically for Facebook.

Then where is the value? It never really had value did it?

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Childcatcher

Re: Look on the bright side

Except that advertising will still be around long after the last iphone is thrown on the scrap-heap.

It does appear that FB was gunning for the "too big to fail" image.

Grossly overpriced at £38, still grossly overpriced at $30. Expect more pain.

I can't think of anyone without a vested interest in a large IPO figure or who was gambling on offloading to other suckers rather than looking at ROI, who would value the company at 100bn.

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Re: Look on the bright side

It's a pretty trivial calculation to work out that the correct share price was under $10. How much under is a bit harder. Maybe $8; may be as low as $2. Morgan Stanley knew this as well as I do.

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FAIL

Re: Look on the bright side

I read something yesterday that Thompson valued it internally at $9.50/share so it could have a loooong way to drop yet.

Even $9.50 is way overpriced, imho... I'd value it seriously at maybe $2BN, sarcastically at about 37p which is still possibly more than I'd pay for the whole shebang though I can afford to lose 37p.

The real tragedy IMHO is that all these fuckers with 40BN dollars to squander in evaporating share prices would be better putting that kind of cash into advancing the human fucking race.

You know.. 40BN of medical research, space exploration, alternative energy, etc.

#Failbook cos it needs to trend. #Fraudbook even.

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Coat

Re: Look on the bright side

Apple, Microsoft and Intel *all* make real products

Errrrr No. RealNetworks make real products, specifically RealPlayer

OK OK! I'm going... Mines the one with a copy of VLC in the pocket

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Nev

Classic pump 'n' dump

See title.

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I'd happily invest in Stalkerbook

...at a reasonable price, say $1 a share?

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Trollface

YourAnonNews on Twitter has a new phrase for when you get suckered: GotZucked

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Meh

I'm not one to defend financial institutions...

...but this doesn't look like a big deal.

Morgan Stanley's research analyst revised his predictions based on the public information that Facebook put out, saying they weren't so sure how to monetize Facebook on smartphones. The research analyst has to be independent of the IPO people - so, he came out with his revised prediction to a few major clients. As the story says, it's normal for major clients to get predictions ahead of the mainstream.

They are only predictions, based on his experience and public information. He did not have (or one hopes he did not have) any inside information about the IPO. There was no insider trading going on here.

It's unusual - in most cases, the analysts of a company that are leading a major IPO will tend to talk it up. But it's not wrong; arguably, it indicates that Morgan Stanley were sticking to the rules that the people who do their analysis are completely independent of the people leading their IPO.

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Thumb Down

Rigged game

There is a difference between small investors making wrong choices and losing a little money and the large financial institutions rigging the market so that the ONLY people who can make ANY money are their own large private clients. Morgan Stanley's own employees (the ones responsible for retail investments rather than private equity) have publicly stated this is unacceptable.

Perhaps the problem is that some bankers have realized there, now that the 1% have the majority of the money, rather than providing any service to the 99% there is more commission to be made by using them as cannon fodder, allowing the 1% to short sell and squeeze the sponge just a little bit harder.

Need a Citizen Smith icon

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FAIL

Not exactly a surpise

Before the IPO I mailed someone to say that I wish I was able to short FB because I just don't see FB's business being worth what was indicated by the IPO.

Mind you I heard someone comment that MS oversold the shares then bought back the balance yesterday, if that's correct they were essentially shorting the IPO. Bring back the days of no prop trading and seperation of retail and commencial banking.

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Shameless name-dropping

The best investment advice I've received was passed on from Bob Metcalfe (we were discussing a similar IPO just prior to the 2000 Internet bubble): "If your stock goes up, sell; and if it goes down, don't buy it in the first place."

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WTF?

What a surprise

The banks not only bought shares themselves which artificially kept the price up but now we are told they were not exactly forthcoming on information important to potential investors.

It certainly sounds like it should be illegal but in the murky world of banking probably isn't and there will likely be huge bonuses all round for a job well done. That they could do such things in the midst of intense scrutiny and disgust for their past behaviour shows they really don't care as long as they are raking in loadsa money.

Don't you just hate them?

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Devil

Desperate

Lets be honest Wall St are desperate at the moment for new multi billion dollar companies like FB as the only other new companies appearing in the good old US of A are of the green type ones and they are dying quicker than you can say what happened to all that tax payer money, just Google Solyndra.

Moron Stagnate and the rest of them know full well that China and India will be taking all their money real soon, well unless they can inflate the stock prices of say companies like FB.

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If you're all so clever...

Why aren't you all millionnaires now, having short sold the stock?

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Re: If you're all so clever...

a) because we've been told that was made illegal.

b) joe public cannot sell those shares fast enough to get money shorting, or if they can there are charges and capital gains tax and all those charges for little people who cant afford tax havens.

As has been noted earlier in this thread the markets don’t want a perfect market.

For two reasons:

1) they cant manipulate things as easily

2) how unstable would the market become - it only 'works' its relatively small - when it gets big it feeds on its own tail and the boom and bust would be hourly not several-yearly.

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Re: If you're all so clever...

a) because we've been told that was made illegal.

For banking shares, yes. It's not Facebank (yet) though, so it's not illegal.

b) joe public cannot sell those shares fast enough to get money shorting, or if they can there are charges and capital gains tax and all those charges for little people who cant afford tax havens.

You still take home a profit, even after tax. And by "fast enough", the concensus seems to be that the value of these shares should be <$10. Currently at $31ish, so there's a fair way to drop so a fair bit of time yet.

My point is that there are many who like to say "yeah yeah saw that coming, how stupid everybody else is..." yet not many willing to put their money where their mouths are. Sure, I have the same hunch - Facebook is not bricks and mortar, like Tesco - but it's a hunch, and I wouldn't be so blasé as to think I'm somehow superior for not buying into Facebook at the IPO.

I wonder how many people here said the same about the Google IPO?

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Facepalm

Re: If you're all so clever...

At $31 a share I can probably buy about 10 shares so whats my profit commonsense? what you think everyone on here is a hedge fund manager and not some geek in an office where all the A/C is in the server room next door earning just enough to pay for the wind mills to make hedge fund mangers fell better about themselves.

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Paris Hilton

Re: If you're all so clever...

'My point is that there are many who like to say "yeah yeah saw that coming, how stupid everybody else is..." yet not many willing to put their money where their mouths are.'

Not everyone is as clever as you commonsense http://www.telegraph.co.uk/technology/facebook/9284832/Facebook-founder-Mark-Zuckerberg-sued-by-shareholders-over-IPO.html

Paris because I'd buy shares in her.

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Re: If you're all so clever...

Umm, who said anything about buying shares? I was talking about short selling. Look it up.

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Devil

I did

And it seems you still need money to short sell so my $310 still don't go far.

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Why we're not all shorting Facebook

> And it seems you still need money to short sell so my $310 still don't go far.

Certainly that's one reason. Whether we're talking covered short selling (where you typically borrow the shares you're shorting, or have an agreement to obtain them), naked short selling (where you don't have them, and you assume you can buy them when you have to), put options, or whatever mechanism - there's an investment cost.

Perhaps a more important one that may apply to some Reg readers is that they have a personal policy of not playing the stock market. I might have been sure that Facebook's price would drop (I wasn't, since I've learned not to bet against foolishness), but I don't personally trade equities, except for my stock options and ESPP shares (which I treat as a windfall that could disappear at any time). I have a diverse portfolio of funds for that; I'm not going to try to second-guess them based on what I can read in my spare time.

Third, even if we think Facebook is ridiculously overvalued, that's no guarantee that it won't remain overvalued for a long time. No doubt many people holding FB shares are hoping it'll rise again. It can take a long time for a tech stock to reach a stable value in the market. Look at Yahoo: it's averaged around $15 for the past year (50-week simple moving average), but back in October 2007 it was at $33. It took the '08 crash to revalue it. And in December 1999 it was at $108; it had crashed to $15 a year later, finally bottomed out at $7 in September 2001, then climbed back up before dropping again and stabilizing.

Short selling takes more than a good guess (a couple of them, actually: target price and timing). It takes money, time, and the willingness to accept the risk (and arguably moral hazard, as I suggested above).

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