State Opens Investigation into Facebook IPO

By Sarah Birnbaum

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May 23, 2012


BOSTON — Massachusetts’ top securities regulator has subpoenaed Morgan Stanley related to allegations that it misled most shareholders about the value of Facebook's IPO.
 
State Secretary William Galvin said his office is investigating whether Morgan Stanley told selected investors — but not all of them — that Facebook was facing weaker revenues than previously expected before trading started on May 18.
 
“I’m very concerned about the impact on Massachusetts investors to make sure they were treated fairly," he said. "The bigger issue here is to make sure that average investors who the market is desperately trying to get back in the marketplace are treated the same as institutional investors.”
 
Galvin said that if the allegations are true, then privileged Wall Street insiders were in a position to cut back on Facebook stock or dump shares while the average person who bought Facebook stock on May 18 lost money as the stock retreated from its initial price.
 
“We don’t know what the subpoena is going to reveal and I’m not going to prejudice Morgan Stanley’s situation by saying ‘I expect to find this or I expect to find that,'" Galvin said. "But if it’s true than it means that average investors were losers at the expense of the winners who got inside information.”
 
Morgan Stanley is also being investigated by the Securities and Exchange Commission and is being hit with several class-action lawsuits. The company defended itself in a statement, saying it acted "in compliance with all regulations."
 

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