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Investonomics: The economics of the Facebook IPO | Deal Insight – Legal insight

Unlike in some new Asian and Latin American Economies the $10B Facebook IPO failure is not a national crisis but a chance to bill some good legal hours and raise the visibility of key issues on the networks and the blogs.

Facebook’s 18 M shares available for shorting for the Traders are already enjoying a 50% premium , that is more than 4% in cost added to the sale price of the short that you have to earn on the downtick, also its available 18M shares are unlikely to get retail buyer so will make it to unsuspecting retail investors through their holdings in funds and ETFs although some like SOCL are probably safe as they are open to shorting the IPO further after six months depending on the opportunity as and when new supply comes in after 3 and 6 months.

Lawyers have started the class action suit,  the first one directed at Facebook itself and the others coming probably one targeting the investment banks. SEC would be investigating Morgan Stanley and Fidelity(retail investors) and NASDAQ (Knight Capital) are facing new legal action apart from the investigations by FINRA, the Senate Banking Committee and another by the Mass. Secretary of the Commonwealth

Fidelity apparently could not execute trades at the prices requested by clients and they have found out so on the third day of the listing only. There was a spate of cancecllations at some and E*Trade lost a million dollars in just market making the IPO. NASDAQ’s glitches in retail order management were thus responsible for than a few minutes of delay but it remains to be seen if they would be held responsible for the Knight Capital’s trading losses or infact lose the FB listing as suggested by Reuters as Apple also trades down in the afternoon today. NASDAQ lost 6% of its market value in this Storm in a Teacup

of course a big part of the blame will eventually settle down on Morgan Stanley though they have a great head start with Facebook taking most of the fall and trading losses having made its stock story a no show at the pictures. Morgan Stanley’s mismanagement has caused the other spate of suits as it informed its private club of institutional investors apparently of the new Sales forecast at Facebook which most retail valuations neglected in the run up to the IPO and which was never publicly admitted by the company

Mark Zuckerberg’s founder’s circle will attest to the fact of having been burned regularly and now Goldman Sachs and Morgan Stanley join the select group. The geeky nerd probably thinks its the part of the deal the world made with him, and seriously right now there is not much more that can be said about his own actions in the fracas but the Facebook saga would continue to have these hiccups down the line. Twitter’s similar anachronisms or paddlewhacks coul be more understandable as related to crowd sourcing but Facebook’s itinerant problems are its own even as the giant trundles own mucha s its new colleague on the NASDAQ 100 which it is still likely to join in three months.

The $100 mln  cost for investment bankers continues to make its mark till next week as Morgan Stanley corrects trades and in many cases lets Clients know the price at which their trade has been executed. MS has also updated its salesforce on Friday that client trades would be adjusted so everyone has paid below $43 per share.

Michael Grimes, as head of Morgan Stanley’s tech practice would be expected to take th eheat for the IPO failure. If however, Facebook’s objectives were to sell down its existing holders’ shares for profit to the public, it may have been the best priced IPO ever.

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