Morgan Stanley Says It Played by Rules in Facebook’s IPO
Morgan Stanley (MS) defended its role in Facebook Inc. (FB)’s initial public offering after a Massachusetts regulator subpoenaed the bank over talks between an analyst and investors about the social media company’s revenue outlook.
“Morgan Stanley followed the same procedures for the Facebook offering that it follows for all IPOs,” Pen Pendleton, a spokesman for the New York-based investment bank, said yesterday in an e-mailed statement. “These procedures are in compliance with all applicable regulations.”
Facebook shares have plunged 18 percent in the three days since the second-largest IPO in U.S. history, prompting investors to blame Morgan Stanley, the lead underwriter. The bank said it sent a copy of a revised prospectus that Facebook filed May 9 to all of its institutional and retail investors. The filing disclosed that Facebook’s advertising growth hasn’t kept pace with the increase in users.
“In response to the information about business trends, a significant number of research analysts in the syndicate who were participating in investor education reduced their earnings views to reflect their estimate of the impact of the new information,” Pendleton said in the statement. “These revised views were taken into account in the pricing of the IPO.”
William F. Galvin, Massachusetts’ secretary of the commonwealth, said his securities division subpoenaed Morgan Stanley over talks between Scott Devitt, the research analyst, and the firm’s institutional investors about Facebook’s revenue.
‘Regulatory Concern’
Those communications also may be “a matter of regulatory concern” to the Financial Industry Regulatory Authority, the industry-funded brokerage watchdog, and the U.S. Securities and Exchange Commission, Finra Chief Executive Officer Richard Ketchum said yesterday in an e-mail.
Ketchum didn’t say whether his Washington-based agency is investigating Morgan Stanley. John Nester, an SEC spokesman, declined to comment. Reuters reported on Ketchum’s remarks yesterday.
Research employees may communicate with investors if they don’t do it jointly with investment-banking employees or managers of the firm that’s going public, according to the terms of the 2003 Wall Street research settlement. Companies paid $1.4 billion to settle regulators’ allegations that they published misleading research to win investment-banking business.
JOBS Act
The Jumpstart Our Business Startups Act, which became law last month, further relaxed restrictions on analysts who work for investment banks underwriting an IPO, said Jay Ritter, a professor of finance at the University of Florida.
“Under the JOBS Act, affiliated analysts are able to jump in and talk to institutional investors,” Ritter said.
Ken Sena, an analyst with Evercore Partners Inc., cut his 2012 revenue estimate for Facebook by 6 percent to about $5 billion after the May 9 filing, citing the social media company’s disclosures about users’ migration to mobile devices and ad-revenue growth.
General Motors Co. (GM) announced two days before the IPO was priced that it would suspend advertising on Facebook, and the social network “was emphasizing” that its mobile revenue per user was lower than for desktops, Ritter said.
“Any analyst who ignored that and kept the revenue growth rate estimates up wouldn’t have been doing a good job,” he said.
To contact the reporter on this story: Michael J. Moore in New York at mmoore55@bloomberg.net
To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net
Morgan Stanley Says It Adhered to Rules in Handling Facebook IPO
David Paul Morris/Bloomberg
Facebook shares have plunged 18 percent in the three days since the second-largest IPO in U.S. history, prompting investors to blame Morgan Stanley, the lead underwriter.
Facebook shares have plunged 18 percent in the three days since the second-largest IPO in U.S. history, prompting investors to blame Morgan Stanley, the lead underwriter. Photographer: David Paul Morris/Bloomberg
May 22 (Bloomberg) -- Bloomberg's Jon Erlichman reports on a Massachusetts regulator's decision to subpoena to Morgan Stanley over talks between a research analyst and institutional investors on revenue prospects for Facebook Inc. Morgan Stanley defended its role in the initial public offering. Erlichman speaks on Bloomberg Television's "Bloomberg West." Bloomberg's Emily Chang also speaks. (Source: Bloomberg)
May 22 (Bloomberg) -- Jeff Corbin, chief executive officer of KCSA Strategic Communications, talks about the 19 percent decline in Facebook Inc.'s shares following the company's initial public offering. Corbin speaks with Mark Crumpton on Bloomberg Television's "Bottom Line." (Source: Bloomberg)
May 22 (Bloomberg) -- Cliff Lerner, chief executive officer of Snap Interactive Inc., talks about the impact of the drop in Facebook Inc.’s shares on Snap's stock. Lerner talks with Trish Regan on Bloomberg Television’s “InBusiness.” (Source: Bloomberg)
May 22 (Bloomberg) -- Brian Wieser, an analyst at Pivotal Research Group, talks about Facebook Inc.'s valuation and the outlook for the company's shares. Wieser speaks with Betty Liu on Bloomberg Television’s “In the Loop.” (Source: Bloomberg)
Morgan Stanley Says It Adhered to Rules in Handling Facebook IPO
Scott Eells/Bloomberg
Pedestrians walk past the share price for Facebook Inc. displayed at the Nasdaq MarketSite in New York, U.S.
Pedestrians walk past the share price for Facebook Inc. displayed at the Nasdaq MarketSite in New York, U.S. Photographer: Scott Eells/Bloomberg
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