Henry Blodget, Business Insider, on disturbing news regarding Facebook’s initial public offering:
As I described earlier, at best, this “selective disclosure” of the estimate cut is grossly unfair to investors who bought Facebook stock on the IPO (or at any time since) and didn’t know about it.
At worst, it’s a violation of securities laws.
Basically, a Facebook financial executive told the three underwriters of the IPO that earnings might be lower than expected. Subsequently, those underwriters all cut their estimates for Facebook. They then selectively disseminated the modified earnings to institutional investors, while failing to inform retail investors. In doing so, the retail investors paid a price they might otherwise have been uncomfortable with given the reduced earnings forecast. Now that the information has spread, the price is falling to a level that institutional investors originally expected. This is bad news and further muddies what has been an ugly IPO.