Tracking Facebook’s Botched IPO

May 24, 2012

It’s getting hard to track the myriad research issues related to Facebook’s botched IPO.  First, a technical glitch delayed  trading by half an hour.  Less than a week later,  FINRA was calling for an inquiry into whether the IPO’s underwriter, Morgan Stanley, selectively informed investors regarding reduced revenue projections. And then, a class action law suit.  A Washington Post article begins, “Almost four years after the financial crisis, Wall Street still can’t get it right.”  Here’s a review of the materials you might monitor to stay on top of these issues:

 

Securities Regulators’ Investigations

NEWS: The Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) have expressed concern and the Massachusetts securities regulators have issued subpoenas for Morgan Stanley.

The best place to find information regarding securities investigations is typically the news.  Usually only diligent reporters  hold this information because, as the SEC explains,

All SEC investigations are conducted privately. Facts are developed to the fullest extent possible through informal inquiry, interviewing witnesses, examining brokerage records, reviewing trading data, and other methods. With a formal order of investigation, the Division’s staff may compel witnesses by subpoena to testify and produce books, records, and other relevant documents.

We started our research on this issue in WestlawNext in the News content category with the following search:  morgan stanley facebook subpoena.

In Westlaw.com you can try a search in the ALLNEWSPLUS database such as: DA(AFTER 5/21/2012) & FACEBOOK & MORGAN-STANLEY & INVESTIGAT! SUBPOENA

SEC Press Releases: The SECDOCS database contains documents released by the Securities and Exchange Commission including press releases. To date, however, we retrieved no recent, relevant Facebook documents.

Dockets/Releases: If regulators later refer the matter to an Administrative Law Judge or the US District Courts, monitor the federal securities releases (FSEC-RELS) and the district court dockets (DOCK-DCT-ALL)

 

 

Class Action Complaint

A class action complaint was filed on May 23, 2012 in the United States District Court for the Southern District of New York, by shareholders who purchased the common stock of Facebook pursuant to the May 18, 2012 IPO seeking remedies under the Securities Act of 1933 alleging among other things that the Registration Statement and the Prospectus contained untrue statements of material facts and omissions of certain facts. We have this complaint available in our CourtWire archive because it was manually retrieved by one of our court runners. It is also now available in the DOCK-NY-SDCT database. The case caption is Brian Roffer Profit Sharing Plan v. Facebook (1:12-CV-04081). For information regarding docket tracking, download the free user guide for Court Express.

Prospectus / Revised Prospectus

For Facebook’s Prospectus and Amended Prospectuses search the EDGAR database and with the following searches:

CN(facebook) & FLNUM(333-179287) & AD(aft 04/30/2012), or

Use the EDGAR template and run Facebook in Company Name and choose Prospectus from the Form/Filing Type checklist.

The intrigue of Facebook makes even a securities filing an extremely interesting read. The Prospectus provides details of the offering and Page 12 of the Prospectus lists the “Risk Factors” for investing in Class A common stock of Facebook. I find it so interesting that one of the risk factors listed is, “Our CEO has control over key decision making as a result of his control of a majority of our voting stock.” After the IPO Mark Zuckerburg controls approximately 55.9% of the voting power of the Facebook’s outstanding capital stock. This makes Facebook a “controlled company” under the corporate governance rules for NASDAQ-listed companies. Page 80 of the Prospectus includes a letter from Mark Zuckerburg that gives insight into his business philosophy and may be one of the more relevant factors for anyone contemplating investing in the company.

“Facebook was not originally created to be a company. It was built to accomplish a social mission — to make the world more open and connected.

We think it’s important that everyone who invests in Facebook understands what this mission means to us, how we make decisions and why we do the things we do. I will try to outline our approach in this letter.

At Facebook, we’re inspired by technologies that have revolutionized how people spread and consume information. We often talk about inventions like the printing  press and the television — by simply making communication more efficient, they  led to a complete transformation of many important parts of society. They gave more people a voice. They encouraged progress. They changed the way society was organized. They brought us closer together.

Today, our society has reached another tipping point. We live at a moment when the majority of people in the world have access to the internet or mobile phones — the raw tools necessary to start sharing what they’re thinking, feeling and doing with whomever they want. Facebook aspires to build the services that give people the power to share and help them once again transform many of our core institutions and industries.

There is a huge need and a huge opportunity to get everyone in the world connected, to give everyone a voice and to help transform society for the future. The scale of the technology and infrastructure that must be built is unprecedented, and we believe this is the most important problem we can focus on.

We hope to strengthen how people relate to each other.

Even if our mission sounds big, it starts small — with the relationship between two people.

Personal relationships are the fundamental unit of our society. Relationships are how we discover new ideas, understand our world and ultimately derive long-term happiness.

At Facebook, we build tools to help people connect with the people they want and share what they want, and by doing this we are extending people’s capacity to build and maintain relationships.

People sharing more — even if just with their close friends or families — creates a more open culture and leads to a better understanding of the lives and perspectives of others. We believe that this creates a greater number of stronger relationships between people, and that it helps people get exposed to a greater number of diverse perspectives.

By helping people form these connections, we hope to rewire the way people spread and consume information. We think the world’s information infrastructure should resemble the social graph — a network built from the bottom up or peer-to-peer, rather than the monolithic, top-down structure that has existed to date. We also believe that giving people control over what they share is a  fundamental principle of this rewiring.

We have already helped more than 900 million people map out more than 100 billion connections so far, and our goal is to help this rewiring accelerate.

We hope to improve how people connect to businesses and the economy.

We think a more open and connected world will help create a stronger economy with more authentic businesses that build better products and services.

As people share more, they have access to more opinions from the people they trust about the products and services they use. This makes it easier to discover the best products and improve the quality and efficiency of their lives.”