Morgan Stanley is fined $5m for Facebook IPO disclosure

Updated on: 2012-12-18 || Source: bbc.com

 

Morgan Stanley has been fined $5m (£3m) by the Massachusetts securities regulator for "improperly influencing" analysts before Facebook's share sale.

According to the regulator, there was a conflict of interest when a senior banker coached a Facebook official on what to say to analysts.

It also claimed that the two firms failed to tell all investors that revenues may be lower than forecast.

Many investors criticised Facebook as its shares fell following the listing.

The sale, which was over-subscribed and took place in May 2012, was one of the most hotly anticipated stock floatations in recent history and valued the eight-year-old firm at $104bn.

Facebook sold close to 421 million shares, at $38 a share, raising $16bn.

However, the hype surrounding the listing waned shortly after trading started on the New York stock exchange as shares fell below their listing price on concerns about the pace of future profit growth.

Facebook's shares have dipped almost 30% since its listing in May.

Morgan Stanley did not confirm or deny the allegations by the regulator.

However, it said in statement that it was pleased to have reached a settlement and to have put the matter behind it.

"Morgan Stanley is committed to robust compliance with both the letter and the spirit of all applicable regulations and laws," it added.

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The regulator's case focused on events tied to Facebook and its road show, which promoted the share sale to investors.

It alleged that during this period, Facebook informed Morgan Stanley that it expected revenue for the second-quarter of the year to be at the lower end of its forecast of between $1.1bn and $1.2bn.

Analysts had initially forecast that it would either be at the higher end of that range, or above it.

At the same time, Facebook also said that annual revenues for 2012 may miss its initial forecast of $5bn by as much as 3.5%.

The problem affecting Facebook was that an increasing number of people were visiting its website via mobile devices, such as phones or tablet computers.

Facebook warned that because it did not display advertising on the mobile versions of its website, then there may be a decline in revenue from ad sales, its biggest source of income.

According to the Massachusetts investigation, Facebook first filed an amendment to its listing documents on 3 May, in which it warned that revenue growth may be "negatively affected" by this shift from personal computers to mobile devices.

This was followed by a second amendment on 9 May in which it highlighted the weaker revenue trend for the second quarter of the year, running from the start of April to the end of June.

The Massachusetts investigation claims that Facebook told a senior Morgan Stanley investment banker on 8 May about the problem.

The banker then helped orchestrate calls between the company and analysts.

In his order, William Galvin, the Secretary of the Commonwealth of Massachusetts, said that the bank helped Facebook give out this information "without creating the appearance of not providing the underlying trend information to all investors".

In this way, Facebook said it would be able to brief analysts covering its stock about the problems, "without someone claiming we are providing any selective disclosure to big accounts only".

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