Massachusetts regulators on Tuesday issued a subpoena to Morgan Stanley, the lead underwriter for Facebook's initial public offering, in an effort to get answers about reports that some investors and not others were informed of earnings revisions for the company ahead of the IPO.
The state's Securities Division "has put out a subpoena to Morgan Stanley in connection with [an] analyst's discussion with certain institutional investors about the revenue prospects for Facebook," a spokesman for Massachusetts Secretary of Commonwealth William Galvin told Reuters.
The highly publicized IPO is facing scrutiny from several quarters for possible irregularities that may have occurred before the stock was floated and continued through the first day of trading.
There have been questions as to how underwriters Morgan Stanley, JP Morgan, and Goldman Sachs handled the transmission of material information to investors during Facebook's roadshow. Henry Blodget's Business Insider alleged Tuesday that in the middle of the roadshow, smaller investors were not told about a downward-revised earnings forecast (which supposedly came from Facebook itself) while larger institutional investors did receive that news.
Morgan Stanley sought to assure Reuters that the analyst referred to in the Massachusetts subpoena who had revised a Facebook revenue assessment had sent it to retail and institutional investors in line with Facebook's own May 9 revision of its prospectus.
"Morgan Stanley followed the same procedures for the Facebook offering that it follows for all IPOs. These procedures are in compliance with all applicable regulations," the investment bank was quoted as saying.
Facebook, which offered its stock for the first time on the NASDAQ exchange on Friday, has seen its share price drop from the $38 of its initial offering down to $31 after three days of trading.
On the very first day of the IPO, a glitch prevented a number of trades from being executed, leading NASDAQ chief executive Robert Greifeld to state that an "accommodation pool" of as much as $13 million This article is cool may be needed to pay back investors who should had their trades executed in the opening auction.
Customers of Morgan Stanley, Fidelity Investments, and Charles Schwab are reportedly among those who still do not know if Friday trades for Facebook shares were executed. The total payout to injured parties could exceed $100 million when all is said and done, according to some reports.
Other regulators who want answers about the Facebook IPO include the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA), according to Reuters.
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