“Put differently, [Facebook] basically pre-announced that its second quarter would fall short of analysts’ estimates. But the company only told the underwriter analysts about this.
The information about the estimate cut was then verbally conveyed to sophisticated institutional investors who were considering buying Facebook stock, but not to smaller investors…
…. at best, this ‘selective disclosure’ of the estimate cut is grossly unfair to investors who bought Facebook stock on the IPO (or at any time since) and didn’t know about it.
At worst, it’s a violation of securities laws.” – BusinessInsider.com
Ummm, yeeeaaaah… I see this as a pretty big problem and completely shady. When, “at best” the situation is “grossly unfair,” it doesn’t bode well, especially at your company’s much anticipated IPO.
More from Business Insider:
“Earlier, we reported that the analysts at Facebook’s IPO underwriters had cut their estimates for the company in the middle of the IPO roadshow, a highly unusual and negative event.
What we didn’t know was why. Now we know. The analysts cut their estimates because a Facebook executive who knew the business was weak told them to.
The estimate cut appears to have influenced the investment decisions of at least some institutional investors, dampening their appetite for Facebook stock, and crucially, affecting the price at which they were willing to buy Facebook stock… Analysts cutting estimates is generally regarded as significant negative news for stocks. This is especially the case when the analysts who cut their estimates are very close to a company—and, therefore, are thought to have particularly good information…
The SEC and FINRA appear to have acknowledged this, and they may now investigate what happened. More broadly, everyone is still trying to understand what happened with the pricing of the IPO, which was hyped up to be the offering of the century. We now have some more information on that.
Given the PR and legal disaster that the Facebook IPO is rapidly becoming, most official communications channels have gone silent. Facebook declined to comment. Morgan Stanley did not return a call and email seeking comment…
… it seemed, someone had directed the analysts to cut their estimates—most likely someone with inside knowledge of how Facebook’s Q2 was progressing. And we have now heard from one source that that is what happened. One of the underwriter’s analysts has said he was told by a Facebook financial executive to cut his estimates.” – Henry Blodget at BusinessInsider.com