High-profile Facebook flotation faces US inquiry on two fronts

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Two US government panels are to investigate Facebook's high-profile stock market flotation amid claims the bank handling the offering may have provided only select clients with a negative assessment of the company.

South Dakota Democrat Tim Johnson, chairman of the Senate Banking Committee, said yesterday that his panel wanted to learn more about the offering and is seeking briefings with regulators, Facebook representatives and others before determining if a hearing should be held.

The House of Representatives Financial Services Committee is also is gathering information about Facebook’s IPO (initial public offering).

The subject is likely to be raised in hearings by the Financial Services Committee in the coming weeks, even though no hearings are planned specifically on the Facebook IPO, the aide said.

Senator Sherrod Brown, a senior member of the Senate banking panel, said well-functioning securities markets “require transparency and accountability, not one set of rules for insiders and another for the rest of us”.

“We know that the (Securities and Exchange Commission) must fully investigate and take appropriate action if it discovers any violations,” he said in a statement.

Regulators are already examining the role of Morgan Stanley, the investment bank that shepherded Facebook through its stock market flotation, over the information provided to clients before the shares started trading.

In addition, several shareholders are suing Facebook and Morgan Stanley, claiming the IPO documents contained false statements and omitted important facts.

Amid global fanfare, the social network began trading publicly last Friday.

The world’s largest online social network, it was one of the most anticipated initial public offerings ever, and now serves as a bellwether for other social media companies.

But its market debut was hit with a delay to trading on the Nasdaq for half an hour and then the stock closed just a few cents above where it priced on Thursday night, when many investors had hoped for a big first-day pop.

The shares opened on Friday at 42.05 US dollars and fluctuated throughout the day before closing at 38.23 US dollars.

Rick Ketchum, head of the US Financial Industry Regulatory Authority, the self-policing body for the securities industry, said the issue is “a matter of regulatory concern” for his organisation and the Securities and Exchange Commission.

The top securities regulator for Massachusetts, William Galvin, said he had subpoenaed Morgan Stanley.

He said his office was investigating whether Morgan Stanley divulged to only some clients that one of its analysts had cut his revenue estimates for Facebook before the stock hit the market on Friday.

The bank has said it “followed the same procedures for the Facebook offering that it follows for all IPOs”, insisting its procedures complied with regulations.

The questions about the role played by Morgan Stanley, the lead underwriter for the deal, add to the confusion surrounding Facebook’s IPO.

In the most hotly anticipated stock debut in years, the offering raised $16 billion (£10.1 billion) for the social networking company, valuing it at $104 billion (£65.8 billion).

But the Facebook stock itself has been a disappointment. It fell $3.03 (£1.92) Tuesday to close at $31 (£19.62) and has now fallen $7 (£4.43), or more than 18 per cent, from its offering price of $38 (£24.05).

It managed to add just 23 cents (15p) in its first hours of trading on Friday, then suffered a big decline on Monday.