Facebook investors seek revenge in court
At least 2 lawsuits have been filed claiming that Wall Street's favored clients got privileged access to information that individual investors missed out on.
What can those burned investors do? Some are just going to suck it up, saying that when you play the stock market, you take a gamble. But others are taking their grievances to court.
Post continues below.
At least two claims in New York and California could become class-action lawsuits against the company, its executives and its underwriters. The lawsuits don't focus on the stock tumble -- although you can be sure they wouldn't exist if the stock had gone the other way.
Instead, the suits claim individual investors missed out on important information about Facebook's finances -- information that privileged Wall Street clients knew about before the IPO began. The investors say the information might have made them think twice about buying the stock. Or maybe they would have done what other in-the-know Facebook buyers did: flipped the shares for a quick profit on the first day.
At the center of the issue is this: Facebook made a change to its regulatory filings about a week before its IPO and warned about the financial challenges in its mobile business (Facebook doesn't show ads to mobile users and therefore makes no money on them). Analysts responded by cutting their revenue forecasts for the company and calling major clients to let them know.
Even worse, some underwriters were helping their clients short the stock, according to The Wall Street Journal. Short sellers bet against a stock by borrowing shares to sell at a high price and then buying them back later at a low price.
So analysts were throwing out these red flags for favorite clients, leading some to back out or change their strategy to flip the shares. But Joe Investor still thought Facebook was a rocket to the moon.
It's unfair. But is it grounds for a lawsuit? The Journal's David Weidner says there were so many early warnings about Facebook's potential that investors should have gotten a clue. There's a sucker born every minute, he says in his column. "Are you really so helpless that you're depending on Morgan Stanley and Goldman to connect that last dot of Facebook's financial picture when 95% of the drawing is visible?"
He's missing the point. Wall Street's favored clients do need Morgan Stanley and Goldman to connect that dot, and they basically got a direct line to Facebook's executives before the IPO. Individual investors don't even get the opportunity. Instead, they're told by people like Weidner to accept what they have and move on.
The biggest impact of the Facebook fiasco may be the potential to change this long-standing practice on Wall Street of analysts secretly giving top investors the heads up before the IPO. Laws do exist to limit this behavior, but the big banks always find a way around them. If regulators are serious about investigating what happened -- and the class-action lawsuits may force that, to some extent -- we may see real change.
But for now, the Muppets have lost another match to Wall Street.
VIDEO ON MSN MONEY
The SEC destroyed ALL of the records pertaining to the largest investigation into insider trading in history(the unusually high volume of short selling of airline stock prior to 9/11).
Do you honestly think the SEC cares about YOU or what happened to your money regarding a nothing stock such as FB?
If you didn't see this coming, you didn't have your eyes open at all!
What's "wrong" with Facebook? Nothing.
Some folks lost money on a get rich scheme. Other folks made money. Facebook was never worth 100 times it's earnings. Only an idiot would have believed that. But the billions didn't just evaporate. It only changed hands. And some people did make money. Sucks to be on the wrong side of the market, but it was a bonehead move.
Your honor, I invested in a company with ZERO hard assets. Most of the world saw the writing on the wall, but not me. I want my money back!
If it went through the roof, how much of it would you give away?? That's what I thought.
You lost 30 million to bad you made a bad move gambled and you lost. That's the way the old bounces. You thought you were going to cut a fat hog and you only got pork bellies.
It's called insider information. Ask Martha Stewart about it. Those on the outside did not have the information that everyone else had. If there is a class action suit and I hope that in these times of "Occupy Wall Street" that there will be one, I will jump right in for the losses that I incurred. It's a matter principle. If they ever want the government to allow people to be able to invest their FICA in the stock market rather than have the big government control it then Wall Street should demonstrate that they will be responsible and fair to all. Wall Street can take the high road or the low road but they would be hurting themselves if they take the low road if they want to change the governmental social security system.
Tis a pity. Crying over spilt milk. Well now the talking heads can go on about FaceBook for a few more months, when they are not on PIIGS. Somebody in the Fourth Estate ought to be looking at the criminals running the Governemnt in the USA.
More bad news. I've never felt safer buying more Gold.
The issue doesn't seem to be that FB was a dog that only a fool would touch at the asking price. The issue is, was the insider information given to the institutional and favored investors before the opening bell on Friday's IPO day made available to you and me?
Is it actionable that it was not?
That is what is to be be determined. Essentially, just how "caveat emptor" is our financial system to be - how far can sharp practices be taken - and may one employ 'emptor' discrimination?
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
[BRIEFING.COM] The stock market finished an upbeat week on a mixed note. The S&P 500 shed less than a point, ending the week higher by 1.3%, while the Dow Jones Industrial Average (+0.1%) cemented a 1.7% advance for the week. High-beta names underperformed, which weighed on the Nasdaq Composite (-0.3%) and the Russell 2000 (-1.3%).
Equity indices displayed strength in the early going with the S&P 500 tagging the 2,019 level during the opening 30 minutes of the action. However, ... More
More Market News
|There’s a problem getting this information right now. Please try again later.|
MUST-SEE ON MSN
- Video: Easy DIY smoked meats at home
A charcuterie master shares his process for cold-smoking meat at home.
- Jetpacks about to go mainstream
- Weird things covered by home insurance
- Bing: 70 percent of adults report 'digital eye strain'