SALON

Wednesday, May 23, 2012 5:00 PM UTC

Wall St. ruins Facebook

The social network's debacle of a public offering exposes, once again, the rotten heart of finance

By

Topics: Facebook,

Wall St. ruins FacebookMark Zuckerberg (Credit: Reuters/Brian Snyder)

Could there be a bigger public relations debacle for an aspiring technology colossus than the Facebook IPO? It’s bad enough when the stock price doesn’t “pop” at all on the first day of trading, but it gets a lot worse when the financial press spends the following week debating whether the machinations behind the scenes leading up to the botched public offering constitute outright evidence of securities fraud or merely a toxic mixture of greed and incompetence.

Here’s what we know: Sometime in the run-up to the IPO, Facebook realized that it needed to downgrade its revenue projections for the second quarter because of difficulties selling ads on mobile phones — which are increasingly the access point of choice for Facebook browsing. This news was buried deep in an SEC regulatory filing, but it also may have been communicated directly to Facebook’s underwriters who, in turn, may have told their big clients — the institutional investors who usually make out like bandits on IPO day by buying stock at the offering price and then selling on the pop. The big investors accordingly decided that the price was a little too high and dumped their stock as quickly as they could. Thus: no pop. The closing price was essentially the same as the opening price, and that wasn’t supposed to happen.

There’s a lot that’s hazy here. But it smells to high heaven, and lawsuits have already been filed. As Heidi Moore writes in The Guardian:

U.S. securities laws are very strict about what a company can say while it prepares to go public – which is to say, almost nothing. Executives maintain a “quiet period” for months. If the company has to disclose anything, it has to do so to all investors, at once. The fact that sophisticated investors knew the company was warning them about its prospects could have been enough to account for the determined selling of the stock from almost its first minute. Wall Street investors are far less patient with changing the goalposts than are the 900 million users of Facebook who accede to every whim of the company’s changing user agreements.

Whatever happened, one thing is indisputable. The little guy (by which I mean the retail investor, who probably isn’t really a “little guy” as compared to someone who’s on unemployment or facing foreclosure) got screwed. And along with Facebook, the key parties involved in the screwing included Facebook’s three biggest underwriting banks, Morgan Stanley, Goldman Sachs and JP Morgan.

Why do those names sound familiar? Oh that’s right — they were key players in wrecking the economy of the United States by screwing around with mortgage-backed securities. And if you want to go even further back, they were all hip-deep in the IPO scandals that made the dot-com boom such a minefield of fraud and get-rich-quick scams. (Indeed, one of the weirder ironic twists to the Facebook story is the sight of Business Insider founder Henry Blodget, who was himself banned for life from the securities industry for fraudulently hyping dot-com stocks, waxing aggrieved at the improprieties involved in the IPO.)

Never mind the stock price. Never mind the fact that Facebook itself made out like a bandit. The real scandal here is that Wall Street investment banks never change their stripes. Their insatiable greed inflated both the dot-com bubble and the housing bubble, and the closer you look at either episode, the more evidence you find, not just of reckless irresponsibility, but of clear criminal misbehavior. And yet their punishments — if they even get punished, which is rarer and rarer — never fit the crime and never dissuade further misbehavior. The Facebook IPO might seem like a weird flashback to the days of dot-com excess, but what it really demonstrates is business-as-usual in the financial sector.

Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21. More Andrew Leonard.

Next Article

Related Stories

More Related Stories

Featured Slide Shows

The week in 10 pics

close X
  • Share on Twitter
  • Share on Facebook
  • Thumbnails
  • Fullscreen
  • 1 of 11
  • Lisa Montgomery embraces her nephew Thursday after a tornado tore apart her home in Cleburne, Texas. The twister killed six people and destroyed entire swaths of the North Texas town.
    Credit: AP/LM Otero

  • Jack McMahon, the defense attorney for abortion doctor Kermit Gosnell, speaks outside the Criminal Justice Center in Philadelphia Tuesday. His client was convicted of killing three babies in his clinic, and will serve multiple life sentences.
    Credit: AP/Matt Rourke

  • A photo taken Monday captures Vice President Joe Biden's response to a Milwaukee second-grader's innovative proposal to end America's epidemic of gun violence. This guy!
    Credit: AP/Jenny Aicher

  • Sen. Rand Paul, R-Ky., flanked by a grouper-eyed Michele Bachmann, addresses the IRS' admission that it targeted Tea Party groups in advance of the 2012 election. In an op-ed for CNN Thursday, the Kentucky senator slammed the president for his faux outrage.
    Credit: AP/Molly Riley

  • Ousted IRS chief Steven Miller is sworn in on Capitol Hill Friday. Miller testified before the House Ways and Means Committee on the extra scrutiny the agency gave conservative groups applying for tax-exempt status.
    Credit: AP/J. Scott Applewhite

  • Attorney General Eric Holder pauses as he testifies on Capitol Hill before the House Judiciary Committee Wednesday. Holder is under fire, among other things, for the Justice Department's gathering of phone records at the Associated Press.
    Credit: AP/Carolyn Kaster

  • O.J. Simpson sits during an evidentiary hearing at Clark County District Court in Las Vegas, Nev., Thursday. Simpson, who is currently serving a nine-to-33-year sentence in state prison for armed robbery and kidnapping, is using a writ of habeas corpus to seek a new trial.
    Credit: AP/Las Vegas Review-Journal/Jeff Scheid

  • Major Tom to ground control: On Sunday astronaut Chris Hadfield recorded the first music video from space, a cover of David Bowie's "Space Oddity."
    Credit: AP/NASA/Chris Hadfield

  • When it rains it pours. President Barack Obama speaks during a news conference Thursday with Turkish Prime Minister Recep Tayyip Erdogan, inexplicably inspiring an #umbrellagate Twitter meme.
    Credit: AP/Jacquelyn Martin

  • A smoke plume rises high above a road block at the intersection of County A and Ross Road east of Solon Springs, Wis., Tuesday. No injuries were reported, but the the wildfire caused evacuations across northwestern Wisconsin.
    Credit: AP/The Duluth News-Tribune/Clint Austin

  • Recent Slide Shows

  • Share on Twitter
  • Share on Facebook
  • Thumbnails
  • Fullscreen
  • 1 of 11

Related Videos

Comments

 52 Comments

Comment Preview

Your name will appear as username

You may use these HTML tags and attributes: <a href=""> <b> <em> <strong> <i> <blockquote>

follow salon

Most Read

Popular on Reddit

links from salon.com

vote
Paul Krugman’s right: Austerity kills. "In an economy where we’re all in the same boat, one person’s spending is another person’s income. So when the government cuts spending, it reduces people’s income, leading to less business, more unemployment, and a vicious spiral of slowing down the economy."
382 points383 points | 398 comments
vote
Paul Krugman’s right: Austerity kills -- radical cuts destroy economies and lives, and the honest numbers and economics keep proving it
169 points170 points | 27 comments
vote
Virginia state Sen. Mark Obenshain wants to send women to jail who don't report their miscarriages to the police
99 points100 points | 18 comments
vote
Corporate greed is poisoning America — literally
65 points66 points | 11 comments
vote
Facebook “like” on trial in Virginia
27 points28 points | 6 comments

From Around the Web

Presented by Scribol
listener_new_rect The Listener: So long, Sookie Stackhouse

Recommendations