Facebook shares fall two days in a row

Facebook’s initial public offering is getting less friendly with each passing day.

Investors and regulators raised new concerns about the $16 billion (€12.7bn) IPO after Facebook shares fell for a second straight day yesterday, extending losses to 18% below the $38bn offer price.

Morgan Stanley, the lead underwriter, released a statement defending its handling of the May 17 IPO after the Massachusetts securities division yesterday subpoenaed the investment bank over its communications with clients.

The US Securities and Exchange Commission and the brokerage industry’s watchdog both said they may review the offering, and buyers of the stock have sued Facebook, Nasdaq OMX Group, and the underwriters over the sale.

The anticipation that preceded history’s biggest technology IPO has been replaced by investor ire, including about whether the offer was priced too high.

“Rather than anything illegal or untoward, the valuation was the truly unfathomable part of what’s causing this frenzy,” said Michael Holland, chairman of Holland & Co, a New York- based investment firm that oversees more than $4bn.

Facebook increased the number of shares being sold in the IPO by 25% last week to 421.2m and raised its asking price to a range of $34-$38 from $28-$35.

The shares closed yesterday at $31 in the US.

Morgan Stanley, already taking heat for helping price the IPO, received more scrutiny yesterday. The company may face a regulatory review over claims an analyst shared negative news about Facebook with institutional investors before the IPO, said Richard Ketchum, chairman and chief executive of the Financial Industry Regulatory Authority.

Those communications may be a “matter of regulatory concern” to both Finra and the SEC, Ketchum said. He wouldn’t say whether the agency is probing Morgan Stanley.

Bloomberg, citing two people with knowledge of the matter, was first to report that Facebook was telling analysts sales may not meet their most optimistic projections.

The IPO was marred on its first trading day when Nasdaq’s platform was overwhelmed by order cancellations and updates that made the stock-market operator unable to finish the auction required to open. The SEC said it will review the trading.

Investors yesterday filed suit in Manhattan federal court against Facebook, Zuckerberg, and bankers including Morgan Stanley, Goldman Sachs. and JPMorgan Chase & Co, accusing them of misleading them about the company’s financial prospects.

Phillip Goldberg, a Maryland investor, sued Nasdaq yesterday, claiming the stock exchange “badly mishandled” Facebook trading, failing to cancel orders when requested to by customers.



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