Wednesday, May 23, 2012

Regulators to Investigate Facebook IPO

Could be insider trading.

Criticism of the Facebook Inc. FB -8.90% stock deal grew as the shares dropped below their offering price in their first full day of trading Monday, wiping $11.5 billion off the social network's market value.

The company, its investment bankers and the Nasdaq Stock Market came under fire for failing to ensure a smooth debut for one of the most anticipated deals in recent memory. Facebook shares, which began trading Friday at $38 and managed to add just 23 cents by the end of that day, fell 11% Monday to $34.03.

The selloff came partly because some investors who were allotted more Facebook shares than they expected moved to pare their holdings, said people familiar with the matter. Retail, or individual, investors usually are allocated up to 20% of the total shares allotted in an IPO, but in Facebook's case, retail allocation was around 25%, the people said.

Days before the initial public offering, Facebook, whose executives played an active role in the IPO process, according to people familiar with the matter, increased both the price and the number of shares being offered. As a result, many retail investors weren't hungry for more shares once trading began, according to the people.

A representative for Facebook declined to comment. The company raised $16 billion in the offering.

George Brady, a 66-year-old recruiter in North Carolina, bought 1,000 shares of Facebook a few minutes after it opened for trading Friday. He said by Monday morning, he sold his holding, taking a $2,770 loss.

Mr. Brady said he tried not to purchase the shares in the first place, but was unable to withdraw his order on his Charles Schwab account, calling the situation "ridiculous." Technical problems on the Nasdaq Stock Market prevented some investors from confirming their trades or trade cancellations.

"I was stuck for six hours trying to figure out whether I owned this dog or not," said Mr. Brady. He said he has been in touch with Schwab. Schwab didn't return a call requesting comment.

Facebook's offering, one of the biggest U.S. IPOs, was supposed to burnish the reputations of Morgan Stanley, MS +0.91% the deal's lead banker, as an underwriter, and Nasdaq OMX Group Inc. NDAQ -2.02% as the listing exchange of choice for hot technology companies.

"This has been a train wreck," said one hedge fund manager, whose fund also decided to sell some of its shares Monday. He said his fund was allotted 500,000 more Facebook shares than he expected.
BONUS: From Henry Blodgett, at Business Insider, "EXCLUSIVE: Here's The Inside Story of What Happened on the Facebook IPO" (via Techmeme).