Morgan Stanley : Facebook IPO would Falter

In a dubious tale, Morgan Stanley let a select group of its richest corporate clients know that Facebook’s IPO wasn’t likely to go well. It knew this because a Facebook employee had told them so. And we now know this thanks to the inquiring minds at the Wall Street Journal.

As the WSJ said:

"Capital Research & Management wanted to buy into the Facebook Inc.initial public offering. But days before the IPO, an underwriting bank on the deal warned the big investment firm about Facebook's dimming revenue prospects...

"The Los Angeles firm, armed with information from a May 11 "roadshow" meeting with underwriters and Facebook, along with similar estimates of its own, slashed the number of shares it intended to buy...

"Fidelity Investments was among big clients that were told by analysts or bank sales staff of the declining Facebook financial picture, people familiar with the matter say. The nation's third-largest mutual fund firm expressed frustration to Morgan Stanley about Facebook valuations based on the dimming prospects for the company, the people say."

Which, aside from being fairly unethical on the part of Morgan Stanley, could spell legal trouble for Facebook. After all, if they withheld financial information they knew would impact their stock, well, that is illegal.

But this probably isn’t illegal for Morgan Stanley, since it isn’t insider trading, at least according to Reuters writer Felix Salmon.

We will likely see more names appear as time goes on. The story has just broken, after all, and only 3 companies have been listed. Whether this spawns anything more than just bad blood, however, we will have to wait and see.

Gizmodo