Facebook And The Underwriters: A Financial Conspiracy

*I apologize if this isn't placed properly, I haven't posted a thread in some years so, you know the deal mods.*

I've had a bunch of experience over the years in terms of the stock market and finance. Having said that, last week I was following the Facebook IPO and something seemed off. The numbers weren't adding up, the moves by the underwriters didn't make sense, and I felt like these underwriters specifically had either made some massive error or were committing a very big conspiracy.

Evidence is suggesting now that these acts were no mistake.
Facebook Bankers Secretly Cut Facebook’s Revenue Estimates In Middle Of IPO Roadshow

Reuters' Alistair Barr is reporting that Facebook's lead underwriters, Morgan Stanley (MS), JP Morgan (JPM), and Goldman Sachs (GS) all cut their earnings forecasts for the company in the middle of the IPO roadshow.

This by itself is highly unusual (I've never seen it during 20 years in and around the tech IPO business).

But, just as important, news of the estimate cut was passed on only to a handful of big investor clients, not everyone else who was considering an investment in Facebook.
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In other words, during the marketing of the Facebook IPO, investors who did not hear about these underwriter estimate cuts were placed at a meaningful and unfair information disadvantage. They did not know what a lot of other investors knew, and they suffered for it.

Selective dissemination of this sort could be a direct violation of securities laws. Irrespective of its legality, it is also grossly unfair. The SEC should investigate this immediately.

I would suggest reading the full article as it paints a pretty interesting picture of how the general public was left out of the loop, despite laws that are meant to safeguard against this activity.

This is big. The question now is whether the SEC will do the job it is expected to do. Engaging in this activity could easily suggest a conspiracy among the lead underwriters, but could Facebook be involved as well? An investigation needs to be launched to find out to out far this conspiracy went. It will be interesting to see where this goes.

I noticed the media was trying to scare people out of buying in to facebook. I sat down and saw an ABC news segment called 'Top 10 Reasons Not To Buy Facebook Shares' or something like that. Then I switch to Fox News and they run a similar segment. It seemed fishy and MSM always have an agenda. They never actually want to help us so I wondered why the hatchet job on facebook.

Then you have that guy renouncing his US citizenship. The whole thing seems pretty strange. When you consider how much the thing is worth you could understand the old money not wanting facebook to have too much power unless they were sure that they were in on the action.

I think we will hear more.

Great Find!

You have a situation involving a super-hyped IPO that fizzled, with JP Morgan, Morgan Stanley and Goldman Sachs underwriting. Right there the fraud-o-meter is going red.

Now you've uncovered evidence that the Financials were monkeyed with leading right up to the release.

You're very right...this is big! Just have to wonder what will the follow-up be.

On a side note, I seem to recall an ATS Member on a different thread stating that insider's were dumping their heavy positions right up to the IPO's release. Cannot confirm that, but if true I think you have the makings of one seriously massive case of fraud.

Thanks for sharing!

reply to post by Germanicus


Actually, I'm much less cynical than you in this regard. I think that these big media stations aren't purposely trying to screw us/ "in on it" type mentality. I think they're just playing to their own market share most of the time because that's what sells. This is for another thread entirely though.

I think a major article about "not buying facebook" when it's the most anticipated IPO in history would generate some major traffic, don't you?

reply to post by grimreaper797
The share dumping is probably being orchestrated to help lower the price so the big boys can get back in at a reasonably lower price.

reply to post by Hessling


Like I said, the numbers didn't add up, especially Q1 2012 numbers. Looking at the numbers, and expected estimates, I just couldn't understand how they got there and it seemed off.... unless they cut the estimates. That' exactly what they did... they just didn't tell us, the average folks.

Also, while it's not unusual for those guys to cash out a portion of their stock, it isn't going to help their cause at all.

reply to post by grimreaper797


Well I'm happy to hear that someone else out there was getting some wonky feelings over the whole Facebook opening day. As soon as I started hearing that there seemed to be 'glitches' in the computer system as soon as it came online had red flags going up for me.

I'm glad you made this thread as literally I had just finished reading a Reuter's article on this whole thing and was giving serious thought about making a thread myself. Here is the link to the Reuter's article I just read: Facebook shares hit again as valuation doubts rise

From the sourced link I found the last 2 paragraphs very telling... in especially the last:

The company surprised investors after disclosing, just days before the initial public offering, that its revenue may be hit by more users transitioning to mobile platforms, where advertising is less proven. That prompted the analyst at Morgan Stanley to surprisingly tell clients that he was cutting his revenue forecasts for the company.

The company's current price still implies very high annual growth rates. Thomson Reuters Starmine, meanwhile, using expected growth rates of about 10.8 percent over the next decade, values the shares at $9.59, or less than one-third of its current price.

Interesting to say the least!

A good friend at work said on Wednesday last week that he'd spent all weekend trying to convince the financial group that he invests with to short Facebook, they all laughed at him.

I said the same thing last week, anyone who goes long on Facebook is a moron.

A massively overvalued company, with a product which is simply user data that anyone can get from the census bureau.

The revenue forecast cut was immediately before the IPO, too late for the average investor to pull their "buy" option. However, it was obvious to ANY investor that $100 billion for this company was a massive overvaluation, you didn't need Goldman Sachs to tell you this.

I firmly believe (and I posted this on several boards last week) that the financial sector will look back on the era of the "social media bubble" and laugh at the folly.

Facebook invests $1 billion for a company with one product that does things to photos that photoshop already does, and allows you to share them, which you can already do on Facebook, valuing that company higher than Staples office supply depot?

Someone else values a company at $1.5 billion who's product allows you to digitally share photos over a bulletin board style map?

Give me a break!

reply to post by Jaellma


I disagree. Looking at the numbers I thought the underwriters had made a huge error in their pricing of the IPO. This article suggest it wasn't an error but a deliberate move. They decided not to share important information that was "material information" as for as investors were concerned.

They have overpriced it to make money today, knowing it wasn't worth nearly what it was made out to be, leaving the average investors to foot the bill. While facebook does have value (it's still profitable), the pricing was so out-of-whack that something was so obviously off.

A classic case of the pump and dump... Crap like this shouldnt be tolerated

reply to post by MyMindIsMyOwn


Yeah, I don't think the glitches had anything ominous about it. The ridiculously high traffic caused that. Warning signs were there though.

Q1 2011 Revenue: roughly 731 mil. Net income: 233 mil.
Q1 2012 Revenue: roughly 1.058 mil. Net Income: 205 mil.

To me that right there's a warning sign. Their operating cost has just short of doubled between Q1 2011 and Q1 2013, yet it's income fell by 7 million or so. Looking at all the numbers, using even the most aggressively optimistic expectations for the stock, I couldn't figure out how the stock was worth more than 21-25 dollars. (And like I said, that was an extremely aggressive outlook using a variety of 'luck falls the way of Facebook' factors.) It doesn't add up.

The old saying is, "If it doesn't make dollars, it doesn't make sense." Well, Facebook makes penny's, so it does make sense, just not at this price.

I just hope that this info is enough to get the price to drop to a reasonable $12-$18 or so. I would then consider a few shares just for S&Gs and to make some money, of course.

I definitely believed that these guys marketed the opening of FB as such a great move just simply for them to have a safe way out at the maximum dollar they could possibly get. I mean that Thiel guy angel invested $500K and walked with $1.5 BILLION, thats a helluva profit. Not saying he was part of this fiasco, but that guy made some serious money off that company, in fact im sure hes probably most of the way out of Facebook as he seems to make his money and then move on to something else.

Originally posted by grimreaper797
Yeah, I don't think the glitches had anything ominous about it. The ridiculously high traffic caused that. Warning signs were there though.

Yeah, read between the lines here. The word glitches in my first post being in quotation marks. While I would expect some computer hiccups when this came online, when you are watching CNN and the announcer says something along the lines of "there seems to be some confusion as to pricing which has trading delayed at the moment" they can call that high trading volume all they want, I'm going to call it BS and red flags go up. Which was my point.

Personally I did not pay too close attention to the pre-IPO scuttle butt, so any red flags I may have gotten prior to Friday's opening were obviously lost on me. However, the opening price was too high, anyone could see that. Does not take a financial genius to recognize that and you don't have to be a whiz kid on Wall Street to realize it's a safer bet to stay out of FB stock all together or come in at a later time when the price is a little more in line with what it's actually worth.

It's a nice read

Anyone with a modicum of common sense in the financial sector had to realize that FB was far overvalued in the first place.

For one they have a seriously monetization problem, that mostly due to the mobile market. The social media scene understands and KNOWS they simply have a real estate (on a mobile device) problem with even placing ads nevermind the fact that they simply dont click on them.

Given "emotional" ties to social media, that also plays a key-role in it too....one only had to look back at MySpace or the dot-com bust as well to know it wasn't going to fare well. Everyone should have seen the writing on the wall as the only real investors were the insiders (Executives and Officers) and the major players....it didn't take much prognostication to draw the conclusion that those same major players would have had to prop up their investments to realize a modest gain and hope by the time it all shakes out that they made some money or at the very least, trimmed some losses. THEIR problem is that, the smaller investors and short traders DID and DO know how far overvalued the IPO was yet didn't expect it until it was too late (hence I'm sure Davitts late change of heart to lower his forecast). Then they have the gall to mask it under the auspice of "technical" problems at NASDAQ....hahaha

To answer your question though, no, why would the SEC step in and do their job? Who are they going to hold accountable exactly, the firms that are "too large to fail" ? Ooooops I guess not, considering we had our shot at preventing that 4 years ago, and here we are making precisely the same mistakes ALL over again.

Until FaceBook is a company that actually PRODUCES something (they should have taken Googles example and I dunno, maybe released a operating system that works on a mobile phone so THEY could control how mobile ads get pushed) ... they will be nothing more than a fly-by-night social media hub that is expendable,

Been watching this unfold on CNBC. Morgan Stanley, one of our favorite corrupt banks, knew of negative information regarding the FB IPO but only told their top clientele and other insiders, leaving the mom & pop investors on the hook for a grossly overinflated IPO knowing they'd get burned.

UPDATE 1-Regulators may review Morgan Stanley-Facebook allegations

Everything about that IPO had shadiness written all over it.