More.... “In other words, during the marketing of the Facebook IPO, investors who did not hear about these underwriter estimate cuts were placed at a meaningful and unfair information disadvantage. They did not know what a lot of other investors knew, and they suffered for it.
Selective dissemination of this sort could be a direct violation of securities laws. Irrespective of its legality, it is also grossly unfair. The SEC should investigate this immediately.
We first heard rumblings about this last week, and we were so startled that we assumed the reports were wrong. Then, over the weekend, when Reuters reported the basic story again, we said that if it was true, Facebook IPO buyers deserved to be “mad as hell” about it. And now Reuters has the details, and they sound as bad as we had feared.
There are a couple of possibilities for what happened.
The first one is bad news for Morgan Stanley and the other lead underwriters on the deal.
The second is also bad news for Facebook.
According to Reuters, the underwriter analysts cut their estimates after Facebook issued an amended IPO prospectus in which the company mentioned, vaguely, that recent trends in which users were growing faster than revenue had continued into the second quarter.”
Morgan Stanley Was A Control-Freak On Facebook IPO — And It May Have Royally Screwed Itself
If you accept the underwriter estimates uncritically, you’re not much of an investor. Everyone can see it is in the interest of the underwriter to pump up the stock. Anyone taking a substantial position should work out his own estimates.