• WEATHER ALERT Winter Weather Advisory

Nasdaq sets aside $40M for Facebook investors

June 6, 2012 6:31:24 PM PDT
The May 18 Facebook IPO day ignited dreams of newly minted billionaires and a quick first-day bump from its $38 initial price. Facebook made just over $16 billion in seconds, but a computer glitch that delayed orderly trading for two hours cost big investors over $100 million. Now, investors who lost millions of dollars when Nasdaq exchange computers delayed trading will be getting some cash back.

"I think it's damage control and I think it's a sincere effort to try to minimize the bad press," Raymond James Investments senior vice president Dave Lucas said.

Lucas, a veteran Silicon Valley investment adviser, says millions of dollars were lost when the Nasdaq computers became overwhelmed when Facebook's shares began to trade on May 18. Brokers didn't know if their buy and sell orders had been executed.

"The issue is that they didn't know... had we sold it, how much did we sell, what did we sell it for, did we buy it, etc," Lucas said. "That's the real crux of the issue."

The Nasdaq exchange has set aside $40 million, subject to approval by federal regulators, covering sell orders at $42 or less that did not execute, sell orders at $42 or less that traded at an inferior price and buy orders at $42 or less that were not immediately confirmed.

"Based upon what we've heard about the amount of losses and the amount of the fund available, it seems like this certainly will not begin to make everybody whole," ABC7 News legal analyst Dean Johnson said.

The $40 million fund is tiny compared to the $120 million loss estimates claimed by brokers and high-volume traders.

And this is only the beginning of legal issues triggered by Facebook's rocky IPO. Ten lawsuits have been filed so far in San Mateo County claiming Facebook and its underwriters disclosed only to a select group financial data that might have influenced other investors whether to buy shares or not. Facebook did not respond to a request for comment.

UC Berkeley crisis management consultant Ian Mitroff says pending lawsuits may prompt silence, but silence does little to repair credibility.

"The public can forgive people if you own up, but if you stonewall it and you don't do anything, this adds to the crisis because then it comes across, well you really do have something to hide and you really did mess up," Mitroff said.

Johnson says the fund for large Facebook investors may not cover all the losses, but litigation could stretch into years. So it's a case of money now or money much later.


Load Comments