

Morgan Stanley, Goldman Sachs Sued Over Facebook IPO - dmm
http://www.bloomberg.com/news/2012-05-23/morgan-stanley-goldman-sachs-sued-over-facebook-ipo.html

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joedev
Here's the facts: the information upon which analysts reduced their estimates
was publicly available. There was no secret, insider information. It was based
on FB filings with the SEC. Failing to research a stock before investing is
just dumb to the point where plaintiff's really should, by natural
consequence, lose.

If losses are always recoverable via lawsuit or government bailout, all we do
is perpetuate such gambling.

Taking no responsibility for oneself and having a deep-rooted need to find
someone to blame is becoming the great American way. Depressing.

~~~
trimbo
Not stating an opinion either way, but describing what the lawsuit is actually
about here. Morgan Stanley's analyst, Scott Devitt, adjusted _their_ estimates
and they then gave that information to high-end MS customers, but not to the
public. The question is whether or not MS has a responsibility as an
underwriter to disclose that information to an audience broader than its own
clients as material information about the company, or if they had any
additional material information about the company that led them to cut that
estimate.

More: [http://dealbreaker.com/2012/05/even-the-underwriters-were-
si...](http://dealbreaker.com/2012/05/even-the-underwriters-were-sick-of-
facebook-by-the-time-the-ipo-priced/)

~~~
joedev
"The question is whether or not MS has a responsibility as an underwriter to
disclose that information to an audience broader than its own clients"

That is an interesting question and will be a good suit to watch. If the
finding is that there was a responsibility to broadly disseminate such
information, it will also be interesting to see what the impact is to the
financial advisory industry.

~~~
harold
What concerns me more than public dissemination of analysis would be the
instance of them only disseminating negative information to a select group of
their _own clients_ , while leaving their other _mom and pop_ clients in the
dark.

That would seem to be a clear violation of fiduciary duty, and if it turns out
that's what they did, I hope they get the book thrown at them.

------
scott_w
Just to expand, the Guardian mentions this as well.

In essence, the lawsuit revolves around MS and GS passing bad news round
internally without publicly broadcasting it publicly - a form of insider
trading.

The SEC is also investigating regarding this and similar matters.

~~~
cube13
>In essence, the lawsuit revolves around MS and GS passing bad news round
internally without publicly broadcasting it publicly - a form of insider
trading.

This is silly. The bad news for Facebook was public, before the IPO. "Did not
do the research" is not a defense.

[http://bits.blogs.nytimes.com/2012/05/09/facebook-amends-
its...](http://bits.blogs.nytimes.com/2012/05/09/facebook-amends-
its-s-1-filing-to-lower-mobile-expectations/)

<http://www.cnbc.com/id/47147457>

I think that the suit against NASDAQ has some merit, especially considering
all the stories about traders getting the incorrect number of shares.

~~~
ajross
No, that's wrong. The banks weren't passing those two links around, nor the
facts they were based on. They were passing their own analysis, privately, to
a select set of customers.

Whether that constitutes "insider trading" depends on whether or not that
analysis was done based on or augmented by internal information related to
their underwriting of the IPO. That's a question we can't answer, thus the
lawsuit.

------
howeyc
This whole Facebook IPO has got to be the worst I have ever seen traders whine
and the market be irrational. 90+ P/E is okay, but new projections scare you??
Really?? They are projections!! I project I will make 10 billion dollars next
year, buy stock in me!

This IPO was perfect from Facebook and intial investors perspective, it shows
they priced the IPO to extract maximum value (they didn't lose any value to
market traders via a "healthy POP").

Traders obviously placed the wrong bet, boo hoo, suck it up. You can't win on
every trade. You think they'd know that by now.

This whole "I bought a sure thing that wasn't and someone else must pick up
the tab" mentality is crap and must be stopped. I hope they lose this suit, or
at the very most get pennies on the dollar.

------
mcantelon
If you get involved in a venture involving GS and you're surprised you got
screwed then you haven't paid much attention to the current events of the last
5 years.

------
Peroni
Call me skeptical but I have a hard time believing that people of their
calibre failed to notice that facebook's growth projections were massively
overstated.

I wouldn't be surprised if this was the intention all along. They knew the
projections were massively optimistic and knew they'd have a watertight case
(this is pure skeptical speculation) when the inevitable happened.

~~~
jonnathanson
_"Call me skeptical but I have a hard time believing that people of their
calibre failed to notice that facebook's growth projections were massively
overstated."_

Happens pretty much all the time. That's the essence of the Greater Fool
strategy: there's always someone with deep pockets who's willing to take a bad
bet. Even ostensibly sophisticated investors and institutions are willing to
part ways with their better senses when sufficiently excited about something.

 _"I wouldn't be surprised if this was the intention all along."_

I think that's an overly paranoid viewpoint. It seems far more likely that a
bunch of people got suckered in the IPO roadshow than a bunch of people
_willingly allowed themselves to get suckered_ in the vague hope of making it
all back in a class action. Judgments in class actions are anything but
certain, are often drawn out for _years_ , and almost certainly wouldn't make
up the loss on the stock.

~~~
Peroni
_It seems far more likely that a bunch of people got suckered in the IPO
roadshow_

Surely risk analysts are paid silly money to ignore that sort of hype and
concentrate purely on the facts right?

~~~
jonnathanson
In theory, yes. In practice, well, we all know how this story often goes. :)

------
gisikw
I don't understand this. Selective dissemination of actual business data -
fine, sue their asses. But projections are guesses - guesses without any
guarantees. Facebook could magically rake in a billion tomorrow, or completely
shut down - "projections" aside.

Why is it that there's a legal recourse because the projections person X got
were different from what person Y got?

~~~
SagelyGuru
Because the stock price people are asked to pay at an IPO (or at any time) is
based primarily on projections.

So, 'Mom and Pop' got projections A which made $38 sound like a reasonable
price, whereas the big boys got projections B which told them to wait till the
price settles on $10.

~~~
MartinCron
_'Mom and Pop' got projections A which made $38 sound like a reasonable price_

That's only half true. $38 never really looked like a reasonable price.

------
pbreit
1) A big reason why Facebook was not excited to IPO.

2) Facebook probably doesn't care that much since it got its money at very
rich valuation and now can just go about its business (ideally the lawyers
will handle all this with minimal distraction to the company).

------
dmm
Do lawsuits like this happen often for IPOs? Or is this something unusual?

~~~
krschultz
I think lawsuits happen anytime there is big money to be made. Goldman, Morgan
Stanley, and Facebook have hundreds of billions of dollars. They can settle
for tens or hundreds of millions of dollars without batting an eye. That pays
off for the lawyers and potentially the claimants in a life changing way.

~~~
bhousel
I work in this business. Lawsuits against big banks do happen all the time for
stuff like this, you are right about that. But "They can settle for tens or
hundreds of millions of dollars without batting an eye." is absolutely not
true.

These big banks are very aware of their legal exposure and do a lot to
minimize it. A bank (even a big one) would not authorize a legal reserve in
the 10s of millions without lots of people very high up in management being
involved. Big reserves like this are routine, but significant.

------
tedunangst
So these people bought it at $38 or whatever. And now they've lost money
because "the true facts" came out. When exactly did that happen? What's the
timeline here?

~~~
cube13
As far as I know, it's this:

Facebook's IPO roadshow started around May 7th. This was basically Zuckerberg
and the underwriters going around and selling stock to investors.

On May 9th, Facebook released an updated S-1 filing to the SEC. This was made
public at the time. It's here:

[http://www.sec.gov/Archives/edgar/data/1326801/0001193125122...](http://www.sec.gov/Archives/edgar/data/1326801/000119312512222368/d287954ds1a.htm)

Immediately after that, the underwriters(Morgan Stanley, Goldmans, and Merrill
Lynch) updated their growth estimates downward to reflect the fact that
Facebook made less money in Q1 2012 than in Q1 2011. They notified a subset of
their paying clients about this. That's where part of the issue is. SEC rules
also bar underwriters from making public statements about IPO's that they're
involved in, which is probably the primary reason that the analysis was not
made public.

EDIT: More context.

~~~
vibrunazo
> updated their growth estimates downward to reflect the fact that Facebook
> made less money in Q1 2012 than in Q1 2011

Was that only an estimate on their own personal analysis? Or did they divulge
any additional internal numbers that wasn't made public before?

------
SeanDav
This is extremely shady behaviour by these institutions. I would love to see
them get severely disciplined about this by having to make good investor
losses but cannot see them getting more than a smacked hand.

I always thought Facebook was overvalued at something like a PE ration of 70+
at issue but this is no excuse for the way these companies released the
analyst information.

------
mahmud
And so begins the butthurt.

