By Peter Campbell
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A group of investors are suing Facebook and its founder Mark Zuckerberg after losing up to a fifth of their money since the social networking site went public.
Facebook and its banks are accused of concealing a drop in its expected revenues ahead of last Friday’s float.
The value of the company, which was $104bn (£66bn) when shares opened at $38, is now just $85bn.
At the forefront of the row are forecasts made by an analyst at Morgan Stanley, the bank that underwrote the listing.
As Silicon Valley bosses were counting down the hours to the company’s listing, analyst Scott Devitt predicted Facebook’s turnover would be almost £100m lower than expected. Rather than making revenues of £3.16bn, he said the company would rake in only £3.07bn during this year.
But because others in the bank â€" namely its chief technology banker Michael Grimes â€" were working on Facebook’s float, the information was only ‘selectively disclosed’, it was claimed.
The five other banks named on the company prospectus â€" JP Morgan, Goldman Sachs, Bank of America Merrill Lynch, Barclays Capital and Allen Co â€" also downgraded forecasts.
Now all six, as well as Zuckerberg, his chief finance officer David Ebersman and Facebook itself, are facing legal action.
One investor is also suing the NASDAQ, the stock exchange that hosts Facebook’s shares.
When the time came for trading to begin, its computers crashed on the level of demand, causing many shareholders to submit requests, only to see them carried out hours later when the share price had changed. But even the current share price of just lower than $32 is overvalued, analysts say.
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Talk about dipsy, if there was ever a case of over valuation, this has to be right up there with the best. Surely investors should have shown some caution in their quest for a quick buck
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That's the chance you take with ANY float. BP went down right after the privatization back in the 1980's, British Steel didn't fare much better, and after an initial flurry, Eurotunnel didn't do too well either! Buying a share of pie-in-the-sky profits that have not even been set up yet is a pretty big gamble at the best of times. Didn't ANYONE learn from the dot.com bust in 2000? Morgan Stanley floated for the maximum price they thought the market would stand, which is what Facebook pay them the fat commission to do (along with buy up any unsold shares!) A good bit of marketing to get hapless investors to pay top dollar for this turkey is just another day in the financial world... It's been going on for years, so I dunno why people are so shocked about this particular float! Compare that to the privatizations of the 1980's - these were undersold, which allowed investors to make easy money at the expense of the treasury. Conflict of interest again, but the other way!
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