After an 11 percent loss on Monday, with Facebook stock closing at $34.03, Reuters delivers a bombshell. It reports that after Facebook's May 9 disclosure, Morgan Stanley's consumer Internet analyst, Scott Devitt, reduced his annual revenue forecast for Facebook from more than $5.0 billion to $4.85 billion and drops his quarterly estimate, too. Reuters also reports that analysts for at least two other Facebook underwriters did the same in the days after the May 9 disclosure. Furthermore, they informed certain institutional investors about the change.
Because of the Depression-era rules, the selective disclosure isn't necessarily nefarious, as long as the analysts reached the conclusion based on Facebook's public disclosure. In a statement, Morgan Stanley acknowledges that "a significant number" of analysts reduced their estimates for Facebook to reflect publicly available information about the company.
But since several analysts shifted their earnings estimates around the same time, some legal minds begin to suspect that they were warned by Facebook itself to lower their estimates. That's a far more serious charge and could land the company in legal trouble.
SEC Chairwoman Mary Schapiro says publicly that there are issues related to the Facebook IPO that the agency needs to look into.
Massachusetts Secretary of the Commonwealth William Galvin subpoenas Morgan Stanley for details of the IPO. "This is a recurring theme on Wall Street – different investors being treated differently," he tells the Boston Herald.
Glancy Binkow & Goldberg, a Los Angeles law firm, files a class action lawsuit against Facebook, Mr. Zuckerberg, and Morgan Stanley, alleging that material data about Facebook's business, operations, and prospects were not disclosed.
Facebook calls the suit "without merit" and declines to comment on a report in The Wall Street Journal that the company's chief financial officer, David Ebersman, decided shortly before the stock debut to increase the number of IPO shares by 25 percent.
Thomson Reuters StarMine surveys a smattering of analysts who say Facebook would be fairly priced at $9.59 a share. The stock falls further on the Nasdaq, closing at $31.02, down 18 percent from its original IPO price.
