Post-IPO problems pile for Facebook

May 23, 2012 8:07:48 PM PDT
After an initial public stock offering marred by glitches and errors last week, Facebook is now reportedly in talks to make a big switch to the New York Stock Exchange. Facebook shares, currently sold on the Nasdaq, posted a $1 gain Wednesday, but are still trading 15 percent below their offering price. The company is now facing lawsuits, and a government investigation, over its IPO.

It has been mostly downhill ever since Facebook CEO Mark Zuckerberg rang the opening bell on the Nasdaq last Friday morning. The Nasdaq had a half-hour delay caused by technical glitches. Now, investors have filed two lawsuits, claiming they weren't given revised financial information that big institutional investors got.

"If there's material misstatement or an omission of material information by Facebook, then they have violated the federal securities laws," Professor Stephen Diamond, Ph.D., said.

So, instead of a rip-roaring IPO success story, Facebook and its underwriters, led by Morgan Stanley, are facing investigations by the Securities and Exchange Commission, FINRA, which is Wall Street's self-policing agency, the Senate Banking Committee and the state of Massachusetts.

"If somebody's done something less than credible or whatever, they should face their responsibility for that 'cause it does have an effect on others," Michael Hara, who did not invest in Facebook, said.

The financial details might have caused investors not to snap up shares on IPO day. Within days, the $38 initial price had sunk to $32.

Diamond, an expert in financial markets and a law professor at Santa Clara University, says Facebook's top executives may shoulder the blame.

"It appears that in this case, the reports are that the CFO, David Ebersman, had significant control over the process, but of course, that doesn't let Mark Zuckerberg, the CEO, off the hook, he's Ebersman's boss, he controls the company," Diamond said.

Facebook's rocky IPO may also have a negative impact on others.

"It's a black eye for Silicon Valley," Diamond said. "There are a lot of other companies that were hoping or planning to go public in the wake of this IPO. The impact of Facebook's valuation will impact the value of those businesses. This has ripple effects right across the Valley, inside the technology community and in the surrounding community."

Facebook's second-in-command, Sheryl Sandberg, spoke at the Harvard Business School Wednesday, her first public appearance since the IPO. She steered clear of comments about the IPO problems, no doubt because of the lawsuits and investigations.


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