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The Tragedy of Facebook: How Wall Street Robbed Main Street America

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"How do I buy a stock?"

That was the subject line of an email passed along to me the morning of Facebook's (Nasdaq: FB  ) IPO. It was from a friend of a friend, wondering how to buy a stock because she was looking to sink $40,000 -- her entire life savings, previously set aside for a down payment on a house -- toward the Facebook IPO.

I couldn't believe my eyes. How could someone who didn't know the simplest aspect of investing -- how to buy a stock! -- be looking to put her entire fortune into a single risky Internet stock?

That's insane!

At the time, the question looked purely naive. With Facebook's plummeting share price, I now see it less for its naivete and more for its tragedy. I didn't know the person well enough to advise directly against this move, so I simply ignored the email. I deeply regret that decision now.

Sadly, she wasn't the only one asking that same question. It was being asked by millions of investors across America. For the first time ever a company was IPOing that personally touched the lives of almost every American.

Facebook is a cultural phenomenon. Hundreds of millions of users feel a deep emotional connection to the service; many wanted to buy shares for that singular reason. Others wanted in for fear of missing the investing opportunity of the decade. They didn't want to miss out on the next Google.

Never before were the stakes this high -- for investors to embrace the idea of buying stocks and investing, for the investment industry to create awareness around how to invest in a country where half of people save nothing.

But everybody -- all of America who bought in -- got robbed by Wall Street.

Welcome to Wall Street, America. Muppets welcome.
"Whatever positive impression [American investors] had of the IPO market and the stock market in general was just torched to the ground."
-- Mark Cuban on the Facebook IPO

Long before its IPO, the myth of Facebook's unstoppable rise was born. The company had effectively traded for years on opaque second markets where it changed hands at exorbitant prices despite little to no financial information on the company being publicly available. The reports of Facebook's booming valuation on these markets fed the belief that ravenous demand for Facebook was inevitable heading into its IPO.

However, troubling signs reportedly started to emerge around Facebook just days before its IPO. Conveniently, these details were hidden from the public.

This estimate cut for the VIP club only
As the story goes, midway through the customary "road shows," during which companies give presentations to large institutional investors to promote their IPOs, the group of investment banks bringing Facebook public saw their analysts cut estimates of the company's future sales.

Cutting sales estimates mid-road-show has been described as "unprecedented" in and of itself. But here's the thing: The banks themselves didn't spread the word far and wide. They didn't give anything close to fair access to the information.

Instead they used the information to curry favor from their best clients. As Reuters reports, information was "selectively disclosed." That situation might be more acceptable if the cuts were the result of good research from each bank's analysts -- but that wasn't the case. Reports from Business Insider reveal that the bank's analysts cut estimates because a Facebook executive told them to!

If the press reports are to be believed, in a nutshell Facebook signaled that its growth was worse than expected. Instead of spreading the word to individual investors, the Wall Street underwriters selling Facebook pursued a strategy of raising the offering price and targeting more shares for the individual investors -- who remained in the dark. Wall Street was taking Main Street America for a ride.

Now, to be fair, in its S-1 Facebook did disclose that mobile was weighing on growth. However, nobody knew the extent to which that was the case -- a fact it appears Facebook executives revealed to its underwriters... who, again, selectively disclosed the information.

Like every facet of Facebook's IPO, the process served to enrich the best clients of the big Wall Street banks while individual investors were left out in the cold. The whole process was grossly unethical -- at best -- and a huge injustice to any client without an account in the billions of dollars.

However, as will continue being illuminated from Facebook's IPO process, such practices, full of conflicts as they are, are tolerated on Wall Street for a simple reason.

They're profitable.

Countdown to doomsday, the IPO begins
On May 18, the day of the IPO, ominous signs were present early in the day. Trading in the company's shares didn't even start on time thanks to technology problems on the Nasdaq (Nasdaq: NDAQ  ) that persisted throughout Facebook's first day. Once trading began, Facebook opened near $45, a huge pop over the $38 offering price.

However, that victory would prove short-lived. Within 30 minutes of trading, Facebook had plummeted back down near its offering price. The idea of Facebook's IPO going negative represented a huge PR disaster to lead underwriter Morgan Stanley (NYSE: MS  ) , so the company began buying up tons of Facebook shares, providing "support" that led the stock to bounce back.

Perversely, while Morgan Stanley was supporting the Facebook IPO from disaster, according to The Wall Street Journal underwriters Goldman Sachs (NYSE: GS  ) and JPMorgan Chase (NYSE: JPM  ) were lending out shares to be sold short, an action that provided additional selling pressure on Facebook's shares. Many of those short-sellers were likely acting on the knowledge of Facebook estimates that were reduced downward just days earlier -- again, information that was only selectively disseminated and wasn't known by the average individual investor racing to buy Facebook shares.

Morgan Stanley didn't lend shares to short.

Like a pack of wolves attacking its weakest, the Wall Street banks were taking opposite positions. As Yale School of Management professor Daylian Cain told The Wall Street Journal, "It's hard to navigate [conflicts of interest] when there are millions of dollars at stake."

There's that "profits above all else" mantra again.

The house always wins
Naturally, like most investors, I was naive enough to think that Morgan Stanley buying billions worth of Facebook's stock -- which would plummet in the following days -- would result in a loss. But I forgot one key fact: The house always wins.

Morgan Stanley was in charge of an overallotment of Facebook shares used to aid the "stabilization" process -- keeping Facebook from plummeting too far. However, by selling more shares into the market (through the overallotment) than it owned, Morgan Stanley had the net effect of profiting from Facebook's fall! Once again, The Wall Street Journal was on the case and detailed how underwriters notched about $100 million from trading Facebook even as its shares plunged earlier this week.

Heads, Wall Street wins; tails, you lose.
The system is effectively set up so underwriters win no matter what. The early individual investors who had Facebook stock pushed on them by their advisors from the likes of Morgan Stanley Smith Barney -- they weren't so lucky. As the IPO increasingly looked ready to crumble and more shares were offered, the investment banks used their army of advisors -- the ones charging clients a 1% fee to keep their cash in a money market fund that yields 0.2% -- to pawn off shares. Bloomberg has reported that retail investors are sitting on more than $630 million in losses.

Most brokers likely had no idea they were eagerly filling requests for Facebook shares as institutional clients with better access to information ran away from the offering. In many ways, these brokers are individuals like me and you. The problem is they were mere pawns to their larger bank's game, but harmful pawns nonetheless.

And so the plan was complete. Wall Street had managed to take Facebook public at an elevated price, effectively shorted the shares and made a profit, and then pawned off the shares on an unsuspecting public who gobbled up Facebook as a "can't-miss investment." The illusion of easy money was created, only to see Wall Street rob Americans who had a huge information disadvantage.

And you paid them a lot for that service. For your sake, I hope you feel used right now.

It's not that every IPO needs to pop. That's not the point at all. And it's not that people shouldn't take personal responsibility for their own poor decision to buy a risky stock.

The broader point is that Wall Street has created a system that uses individual investors and at the same time is rigged against them. While Wall Street might look at several of the practices above and shrug them off as "business as usual," these are the sort of self-serving actions filled with conflicts of interest that don't treat the vast majority of their clients with a modicum of respect. No wonder there are record-low levels of trust in the financial industry.

It's time for investors around the world to do better.

Forget the Alamo; remember the Facebook IPO, and then fire your broker
As ugly as Facebook's IPO has been, I hope investors use this as an opportunity to learn that we don't need to be captive to Wall Street anymore. There is a better way forward.

My greatest fear is that people will read about this saga and simply blow it off. If the average saver can't read a brokerage statement to gauge whether their advisor is charging them exorbitant fees to underperform the market, how are they supposed to understand the damage Wall Street wrought on them with the Facebook IPO?

Instead of breaking the will of a generation, as Mark Cuban believes the Facebook IPO has, I hope a better glimpse into Wall Street's machinery empowers a generation of investors to say "I can do this without Wall Street's games" and put an end to advisors with out-of-control, self-serving fees pushing investments not in their clients' best interests. Learn how to invest on your own, and fight back against getting taken advantage of. Take control of your financial freedom.

It's time for a change.

Eric Bleeker owns shares of no companies listed above. The Motley Fool owns shares of JPMorgan Chase. Motley Fool newsletter services have recommended buying shares of The Goldman Sachs Group. The Motley Fool has a disclosure policy.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Read/Post Comments (174) | Recommend This Article (539)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 25, 2012, at 12:03 PM, wdgraef wrote:

    Martha Stewart went to jail for doing what these people seem to get away with. I don't understand. it is ok to have a lot of money invested so that you get inside information and act on it but it is not ok for the average citizen to stumble onto that information and act on it. I think law suits are in order here and a criminal investigation of the SEC should also be conducted. I believe they are acting in a criminal manner if they allow this to slide.

  • Report this Comment On May 25, 2012, at 12:04 PM, sien1234 wrote:

    Strange conclusion. It is the IPO process that

    needs changing .

  • Report this Comment On May 25, 2012, at 12:10 PM, TMFMorgan wrote:

    <<Martha Stewart went to jail for doing what these people seem to get away with.>>

    To be fair, Martha Stewart went to jail for obstructing justice and perjury, not insider trading. Until Raj Rajaratnam recently, insider trading in itself has very rarely been a crime punishable with prison.

  • Report this Comment On May 25, 2012, at 12:30 PM, NomisEikrats wrote:

    That's it for me. Not going anywhere near anything to do with Wall Street ever again. I wouldn't cross the street to put them out if they were on fire.

  • Report this Comment On May 25, 2012, at 12:32 PM, gtforr wrote:

    Brief comment on this.

    The IB's should be punished and this should be investigated further but ...

    When my 81 year old mother and friends that know nothing about Equity investing start telling me they want to be "in on" the FB IPO, they are asking for what they got. People with no experience and no idea of investment valuation have always chased the "next big thing" and most always have gotten burned. If they took a little time they would realize that AAPL and GOOG are much better values than FB. Just not as sexy at the moment.

  • Report this Comment On May 25, 2012, at 12:33 PM, sikiliza wrote:

    Facebook was the initiation ritual for a whole new set of Muppets. Stories abound in the WSJ, Bloomberg and other publications about people that had never owned a stock in their lives opening brokerage accounts and withdrawing funds from savings and college accounts to buy the stock.

    This was expected. If you were an investor that knew even a little about the markets, you would have known that:

    1) we are in a period of great market uncertainty and increasing volatility

    2) A great deal of the IPO cash was actually going to early investors and not to the company for future growth inititiatives

    3) That Zuckerberg had no intention of handing over voting rights to new shareholders

    4) That at 25X Revenues, the stock was my most measures, hugely overvalued. The need to ensure that it became a $100B IPO trumped anything else out there.

    Finally, as Aswath Damodaran put it the other day, what went on behind closed doors at Margin Stanley during the Facebook IPO decision-making process was not VALUATION but rather PRICING.

  • Report this Comment On May 25, 2012, at 12:40 PM, RunnerRichard wrote:

    Buyer should always beware! Anyone investing in the stock market must research their proposed purchases. I am a novice investor, but read the daily newspaper and saw enough warning signs that made me back off from the Facebook IPO. The threatened lawsuits should be called "lawyer's get rich." Even if successful in getting refunds, very little will filter to unknowing investors. Lets take this as a lesson learned and move on.

  • Report this Comment On May 25, 2012, at 12:41 PM, thisengineburns wrote:

    eh, I bought just 11 shares just to do it. Lost $100 but I dont plan on selling anytime soon.

  • Report this Comment On May 25, 2012, at 12:43 PM, deborah64554 wrote:

    The commenters who say "the little investors got what they deserve for not knowing what they were doing" should get a swift kick in the pants. The front side. Plenty of smaller investors who did know what they were doing were not "selectively" informed of key points that would have suggested better decisions. When the process is rigged to rip off both experienced and inexperienced small investors, that's wrong. Don't blame the victims.

  • Report this Comment On May 25, 2012, at 12:51 PM, MagicAngelBunny wrote:

    Sayng 'people got what they asked for' has ever been the mantra of thieves and rapists.

    A sense of moral responsibility would go a long way to prevent the sort of disaster we just saw.

  • Report this Comment On May 25, 2012, at 12:51 PM, wiser118 wrote:

    it has always been known , a fool and their money are soon parted. if you are willing to buy a cow for $100 and it dies the next day do you sue the seller, no. same with a stock if this fb stock had gone up 10$ no one would be complaining, you bought it, you keep it

  • Report this Comment On May 25, 2012, at 12:53 PM, foolgabby wrote:

    A den of greedy thieves, the investment world is. Ravenous day traders and the like. The inevitable karma that's coming will affect even those with integrity. Being a part of this madness undermines my beautiful spirit. You can count me out. Get out while you can and invest in yourselves.

    Best wishes.

  • Report this Comment On May 25, 2012, at 12:53 PM, mmuoio wrote:

    What everyone has forgotten in this nonsense is the fact that an IPO is meant to raise cash for the very hard working people that built the company and the company itself.

    It is not for brokers and speculators to make 2-3 day trades and dump with a quick payday that should have gone to the company.

    I trust a few of these traders learned a lesson.....but probably not as there are many many law suits coming which I find laughable as will the courts.

    Talk about audacity and nerve.

  • Report this Comment On May 25, 2012, at 12:54 PM, Spanky4578 wrote:

    This FB debacle is just one more link in the chain that will destroy society. Please see the BBC posting on the economic destruction of 4th Century Britain. The wealthy hoarded and robbed the rest of incentive. The result was the Dark Ages. Can enough of us find the sense and strength to reverse the trend? The political parties don't have solutions, only empty rhetoric. Maybe we need some good old fashioned plagues to bring us to our senses. Oh, I forgot. We're already in one--the plague of unbridled greed.

  • Report this Comment On May 25, 2012, at 12:55 PM, gensosad wrote:

    Stop using the term "investing" and use the proper term of GAMBLING. Investing requires a return known ahead of time ie dividends. Strop selling scrap, please.

  • Report this Comment On May 25, 2012, at 12:57 PM, spfix wrote:

    Didn't know the person so advising them was not an option! I did not know 99% of my future clients before I began advising them. This world can only become a better place if we take responsibility for each other.

  • Report this Comment On May 25, 2012, at 12:58 PM, promommyfool wrote:

    On a technical fluke, I didn't have free cash ready for the FB opening day like I intended. Now I think God was watching out for me. I bought only a few shares toward the end of the day when it got back down around 38.00. I've since decided to sit out FB's opening ups and downs further and put my money to use elsewhere.

    I saw that there is at least one suit going against this mess. I expect to hear more on that in time.

  • Report this Comment On May 25, 2012, at 12:59 PM, OPM75 wrote:

    We have become a society of whiners. No one takes responsibility for there own actions. A fool and his money are lucky enouigh to get together in the first place...

  • Report this Comment On May 25, 2012, at 1:01 PM, SnowdriftFool2 wrote:

    Well I always thought that AAPL was the most manipulated stock. FB beat that in a week now hands down. I doubt that this is going to change Wall Street behaviour though ... it's bred in the bone ... the incentives are there. The best line in this whole article (and there are many) is "fire your broker." I fired mine a long time ago and do my own homework ... FB was a name I stayed away from (actually I avoid IPOs as a matter of principle).

  • Report this Comment On May 25, 2012, at 1:02 PM, MagicAngelBunny wrote:

    Then again, what should we expect when a company that is based on distributing personal information regardless of use, teams with an industry that produces nothing but fees, and ever tries to separate risk and reward?

  • Report this Comment On May 25, 2012, at 1:02 PM, ziq wrote:


    I'm with you. (But I only bought 10)

    Back when Google went public, I was asking the same question: "How do I buy a stock?" Of course, I wasn't intending to sink 40 grand, but I could have easily scraped together what I sank into FB. The pundits were saying $60/share was over-valued. From my personal experience with Google I though there was more to it. These days I am happy to have gotten in at mid-400's/share, but would have been ecstatic at $60..

    This time the IPO really was over-valued, and the market corrected. Frankly, after all the wining I was reading from MF postings I was surprised to see it trading at $31/share. I don't see it becoming worthless any time soon, and I don't plan on selling any time soon. At least I know how to buy a stock today.

  • Report this Comment On May 25, 2012, at 1:03 PM, bigfool54 wrote:

    Fools are dime a dozen...FB and it's sponsors should all go to jail and get their behind ripped so the can get what they deserve.

  • Report this Comment On May 25, 2012, at 1:06 PM, Deserthorse wrote:

    dont waste your time discussing because nothing will come of the debacle, this will be deliberated with no solution and at the end the clue less investors loosing millions or billions, and the banks writing their losses which mean the clueless taxpayer will foot the balance of the losses - that is capitalism in action

  • Report this Comment On May 25, 2012, at 1:08 PM, ziq wrote:

    p.s. I do agree, though, that the IPO process favoring insiders needs fixing.

    Anyone buying securities needs to know that the possibility of total loss is very real. I hope someone told that to the one planning on sinking her house down payment into FB.

  • Report this Comment On May 25, 2012, at 1:08 PM, stevejameson wrote:

    You guys don't know the half of all of it. Facebook has been lying for years, letting Zynga piggy back on its coattails.

    Facebook has repeatedly violated peoples privacy over the past years, changing how privacy works and allowing peoples private information to be shared again and again, forcing the unknown person to get back into there account and relock it back down because the locks from updates came undone.

    Zynga is a major liar, the stock market as well lies about Zynga, they say Zynga lost 20 Million customers to 5 of its most popular games. However thats not true at all. The 20 Million was 90% the same person * 5 who happen to play all 5 games. Zynga requires game players to play other games in order to advance, thus falsifying how many actual players there are. The Stock people know this, but they refuse to publish the truth.

    Wake up people we are being lied to constantly, not only by the greedy bankers, but those trying to get you to invest in a blank sheet of white paper.

  • Report this Comment On May 25, 2012, at 1:12 PM, DJI30K wrote:

    I beleive that the stat for IPO's is wait 6 months and buy it cheaper almost 90% of the time.Of course my memory isn't as good as it once was:)

  • Report this Comment On May 25, 2012, at 1:14 PM, dhuddle wrote:

    Great article Eric. Those who say "A fool and his money are soon parted" are correct, but if the promoters didn't reveal relevant information, I think that would be fraud and they should go to jail. We need an honest stock market and to encourage people to invest, because that is good for our nation. But if people are afraid to invest, they won't. We need to consider what is best for our national interest. Fraud and stock price manipulation should be illegal and the law should be enforced. Recently I watched what I believe was a manipulation by David Einhorn and associated "journalists" drive down the price of Herbalife from $70 to $42 in a few weeks. That sort of thing should be investigated - I am amazed that it isn't. It causes people to be suspicious that the market is being manipulated and it will influence people's investment decisions, including mine.

  • Report this Comment On May 25, 2012, at 1:16 PM, thriveorsurvive wrote:

    1. There was more hype, less reality and less visibility into what's really happening. Part of that is the IPO process where information is less "public." And, lots of hype.

    2. Now that Facebook is public, we'll start to see more information - and - they'll be held to increasing revenue, not just subscribers.

    3. Subscribers are nice, but they don't increase profits. Look at history of companies that were purchased for their subscriber base and then over time didn't perform. Average revenue per subscriber last quarter (NYTimes) is only $1.21 with 901 million users. Even with record growth of subscribers, there is a concern about revenue.

    4. I don't want to invest in a company where shareholders are not given voting rights - what this means is Zuckerberg can do whatever he wants with the company - and - shareholders will have to abide by that.

    5. Amazing that stocks can be "propped up" to artificially manipulate the market by the big investment banks. Yikes. Watch out small investors.

  • Report this Comment On May 25, 2012, at 1:17 PM, PostScience wrote:

    Speculators are mad because they bought the stock hoping to sell it for a profit in a couple days, but it didn't work?

    In the mean time, Facebook raised as much cash as it could, which is the point of an IPO.

  • Report this Comment On May 25, 2012, at 1:17 PM, oldman144 wrote:

    As the evil Gordon Gecko said in the movie-- "Don't get emotionally involved with a stock."

  • Report this Comment On May 25, 2012, at 1:18 PM, bigfool54 wrote:

    Investing in FB is/was like investing is pink sheets! FB should have been listed as a penny stock...

    read and learn how to invest..

  • Report this Comment On May 25, 2012, at 1:19 PM, stepsli wrote:

    From the sub-prime debacle we learned what GS was capable of doing to achieve profits for the firm. It might be interesting for FB to trace all the sales after the IPO, as GS has tons of FB shares that they can deliver in 6 months when their lock-up agreement is up.

  • Report this Comment On May 25, 2012, at 1:21 PM, dhuddle wrote:

    P.S., I agree 100% that people should be "investors" and not gamblers. Being an investor means doing some research and having some understanding of the company and its financials. Facebook has a great position, but does it warrant a higher P/E than Apple, Google, Microsoft and Intel?

  • Report this Comment On May 25, 2012, at 1:21 PM, thehynie wrote:

    I blame the SEC rules for this, and we should all write to the SEC and ask that the rules be changed. The rules surrounding offerings don't allow the underwriters and selling group members to publish research about the shares to be offered during a quiet period before and after the offering. This is to protect the public against puffery. This is a very paternalistic view of investors by--our government!

    At the same time, they allow the underwriters to say basically what ever they want to sophisticated institutional investors, who don't need to be "protected."

    This allows for an unlevel playing field in a situation where late changes allow institutions to be informed of the actual potential impact of negative developments, while the public can only read a little extra boilerplate in the prospectus.

    This is in contrast to the doctrine of full disclosure that prevails once stocks are out of the quiet period.

    Basically, laws and SEC rules surrounding offerings effectively presume that the public is not capable of discerning the conflicts of interest raised by underwriters publishing research on shares to be offered.

    If you want the government to treat you like a child, and allow the unlevel playing field during offerings to persist, do nothing. If you demand to have a level playing field, complain to the SEC, your Congressman, etc.

  • Report this Comment On May 25, 2012, at 1:24 PM, aliikane1000 wrote:

    Millions of retail investors got caught up in the hype (me included). For months, you couldn't turn on the tv or be on the internet without seeing facebook ipo hype. I'm sure most people saw something on it tens or hundreds of times over the last few months.

    It is unbelievable how facebook went from the media saying it is best, biggest ipo ever to now the media saying it was the worst ipo ever in just a few days. Retail investors are disappointed and big firms that made money are happy. Small investors are at a disadvantage against big powerful firms. It should be a level playing field.

  • Report this Comment On May 25, 2012, at 1:27 PM, NextStopParadise wrote:

    Who else happens to have noticed that the banks involved in the FB IPO were also involved in the mortgage-backed securities debacle? How can we stop Wall Street from inventing ways to make money while ripping off investors? The ongoing financial manipulation is criminal and the perpetrators need to be punished, not bailed out and then allowed back on The Street to continue raping and pillaging.

  • Report this Comment On May 25, 2012, at 1:28 PM, whyaduck1128 wrote:

    This stock didn't pass the smell test from the very beginning. I simply couldn't see how it was going to make money like it said it would.

    Sometimes the smartest thing you can do is to do nothing. This time was one of those times. I passed and feel good about it. When the stock hits the mid-$20s, I may reconsider, but for now, I'm sticking with my other (largely poor) choices.

    And I didn't need a broker in any of this.

  • Report this Comment On May 25, 2012, at 1:29 PM, Calimesa wrote:

    Hear, hear, OPM75

  • Report this Comment On May 25, 2012, at 1:31 PM, poach wrote:

    any comments on Zuckerberg's role?

  • Report this Comment On May 25, 2012, at 1:31 PM, stevejameson wrote:

    Does it surprise anyone that President Obama, who has full knowledge of what really transpired, has not uttered a single word.

    Do you really think the Nasdaq delayed the opening, do you really think stocks should open $7.00 above their initial opening selling price. Do you think their is not a huge list of those who shorted the sale, and Do you not believe they are all tied to the banks who basically broke the law, I would call it insider trading in the blink of and eye, yet they appear they will get away with it, along with give even bigger bonus's to their top staff this coming Christmas.

    Yes the people who are saying people should do there homework first, don't jump in until you see what is going on, and if you were hoping to score big, then you should go to Las Vegas and have the same hopes, or bet on the 50:1 longshot coming up at the Belmont.

  • Report this Comment On May 25, 2012, at 1:35 PM, mildmac wrote:

    My wife and I discussed purchasing FB stock a while when the IPO was anounced. The discussion was quite short when we both agreed that while Facebook is a relevant part of the American (world) culture, who is advertising (who is coming to FB to look at ads, and how could the P/E of this company ever be considered a good bet. I told her that if we did anything, we would wait and sell the stock short. She looked at me and said "let's pass dealing at all with this stock".

  • Report this Comment On May 25, 2012, at 1:38 PM, pauldelang wrote:

    This is an excellent case study on how to get zuckered into throwing your hard earned cash based on hyped expectations.

    By all means the FB IPO was hugely successful. Zuckerberg made his billions, the underwriters made their hundreds of millions, the insiders made their millions and the rest was relieved of their excess billions but now owns future (very) valuable FB shares. They just got to cling to their expectations and wait a while.

  • Report this Comment On May 25, 2012, at 1:40 PM, jchoward88 wrote:

    I'm confused. Isn't this article from CNBC dated May 9th (9 days before the IPO) exactly the "selectively disclosed" information?

  • Report this Comment On May 25, 2012, at 1:40 PM, fennecfoxen wrote:

    Oh, come on. You don't need to be a wall-street-hugger to see that this is a load of trash. If Main Street had been shut out of the IPO, and the IPO was successful, everyone would be whining how Wall Street was keeping all these ill-gotten gains for themselves. Either way you have a lame "oh, the common man suffers!" headline like this.

    You know what? You want all the monies? You're going to have to take risks to get them, and apply a healthy dose of *caveat emptor*. This is what you wanted, Main Street: in on the deal. Maybe you'll wise up after a few more busted pop-IPOs? We can only hope.

  • Report this Comment On May 25, 2012, at 1:41 PM, jchoward88 wrote:
  • Report this Comment On May 25, 2012, at 1:42 PM, jchoward88 wrote:
  • Report this Comment On May 25, 2012, at 1:42 PM, gwalston wrote:

    Wall Street's escapades with the FB IPO give me the opportunity to tell Fool members that to enjoy getting even, take a look at my new book, Default to Zero. Its on Amazon. It's fiction but what the heck, it feels good to rip the street a new one!

  • Report this Comment On May 25, 2012, at 1:45 PM, AFMRecio wrote:

    You do send a LOT of videos and marketing stuff etc...This is makes up for all of that. Thanks for confirming what I always (and common sense)perceived as true.

  • Report this Comment On May 25, 2012, at 1:46 PM, truth4u wrote:

    Every month there is just another account of the Predator activities taking place on Wall Street.

    It's time to create alternative investment vehicles that by-passes the Stock Market entirely. Same thing can be said about the Economy. Time to create alternative Economies on a Regional Basis; which, can be done, with a lot of hard work.

    All activities would be governed by a very strict Code of Ethics. Mis-step, and be gone!

    Isn't it about time for the Working Stiffs of this Country to start taking control of their own Economic Commerce, and their own Economic Futures?

    Fools: fool me once shame on you; fool me twice, shame on me! Exit the Markets now - - or proudly wear the label: A Fool's - Fool!

    skeptical rascal

  • Report this Comment On May 25, 2012, at 1:46 PM, bigfool54 wrote:

    What a waist of discussion....this is the decade of American's stupidity, fooled over and over ,,, but never learn that true capitalistic is smoke and mirror ..small investor will always be slave to the robber barrens...

  • Report this Comment On May 25, 2012, at 1:49 PM, peders01 wrote:

    I was a broker for many years and this is the stuff that makes me sick. I knew of guys who thought like this, who felt the ends justified the means, who ran with the big monied interests and that made their underhanded activities OK. I just would not play their games. Most of the men and women in my level of activity were like me. The bigger they got the harder it was to stay straight. But that is the way in business in general. So where is the Glass-Steagall law when you need it? Where are the overseers that were in place for years ? They have gone the way of good judgement and fair practices, gone with the wealthy thinking that they should shoulder the larger % of the burden. To hell with the poor and goodby to the middle class.

  • Report this Comment On May 25, 2012, at 1:53 PM, andrewlhy wrote:

    While I think that the IBs played a huge role in the failure of this stock, you cant just blame them. The hype surrounding FB was built up upon for weeks. even had a IPO count down. There wasnt as much discussion about the financials and all the built up excitement made people want to buy the stock without thinking. While I feel bad for people who lost money in stocks, its kind of silly to put a large amount of your life savings into a field where people are trying to get your money.

  • Report this Comment On May 25, 2012, at 1:55 PM, whyaduck1128 wrote:

    mildmac--You married a wise woman. Best wishes to you both.

  • Report this Comment On May 25, 2012, at 1:55 PM, wrwhiteal wrote:


    The stock went at $38, dropped to today's $32...

    SO WHAT?

    It's not the end of the world... anyone who has no tolerance for risk, stock dips.. who does not understand how babbling idiots can take a stock up or down temporarily.. shouldn't be buying individual shares anyway...

    Get a grip.. the stock is down 20%... SO WHAT? It is a frigging week after trading started...

    This is just more mindless OWS, demonize America/wall street BS.

  • Report this Comment On May 25, 2012, at 1:56 PM, parrotwallace wrote:

    to paraphrase a famous investor, i think he said that when people get greedy, i become cautious, when people panic, i become greedy.

    not to say that everyone looking to buy facebook is greedy, but even i, not an insider by any means aside being a 'fool' and reading the Economist and Bloomberg Business every week, I knew that this IPO would be a bust.

    with everyone talking about the valuations 100 times earnings, and looking at what the company does and how dependent they are on a very limited product line that they can sell.........

  • Report this Comment On May 25, 2012, at 1:59 PM, truman1987 wrote:

    This article doesn't make any sense. How could Morgan be selling shares to stabilize the stock. That would cause the stock to go down not up. No small investors are ever part of an IPO. They have to buy after the opening, it was the lack of small investors that caused the stock to go down. The institutions didn't have anyone to dump the stock on and make a quick buck.

    Here is a much better Fool article about what really happens:

  • Report this Comment On May 25, 2012, at 2:01 PM, Bert31 wrote:

    This is how it sounds to me:

    Customers that pay more in fees, got better information from their investment advisors. This is no different then an MFOne customer or Supernova customer getting better information than someone who only uses SA or just the free site.

  • Report this Comment On May 25, 2012, at 2:05 PM, Synchronism wrote:

    The FB price went exactly the way I expected it to... except that the first-day pop didn't breach $50 as I thought it would. (Ended up treating my friend out to lunch, though. =_= I was telling him people are so stupid and gullible they're going to bump up the prices up there before reality sinks in.)

    Anyway, Bleeker's opening for this article and gtforr's and skilza's comments stand as a testament to the pendurable trait of human nature. ^^

    What I find puzzling, however, is the fact Mr. Damodaran landed the spotlight for something that was exceptionally plain and obvious to anyone keeping tabs on the hype. Before the IPO, you've had GM questioning the reliability of marketing through FB. You've had constant waves of fear jittering the markets. You've got streams and streams of articles talking about FB on MarketWatch and revving up the attention with debates on its value. You've got FB maximizing the IPO price range, on top of the details skilza mentioned above (refusal to hand over control; the very nature of an IPO as a primary transaction with the underwriter and/or issuer).


  • Report this Comment On May 25, 2012, at 2:05 PM, bkruse59 wrote:

    Not everyone got ripped off by Wall Street. Some of us just opted not to play. Monetizing the internet has been a mysterious subject since the World Wide Web was first launched in the mid-1990s. Despite being well past the dotcom bubble, it's still a highly speculative industry segment and I can't muster up a lot of sympathy for the people who got burned. I share the author's concern for the clueless people who wanted to be part of it, but what is the proposed solution? For those people, the stock market is no different from any other kind of gambling. What does surprise me a little is that the big players are so willing to support the valuations for FaceBook. In the interest of educating the public, what valuation would the Motley Fool put on FaceBook's stock?

  • Report this Comment On May 25, 2012, at 2:08 PM, mfcessna wrote:

    The shepherd always fleeces the flock, and the sheepeople who let it happen to them because of hype get what they deserve. Were there prosecutable actions? I don't know, but considering all the sound advise that was circulating, you would have had to be blind to think that FB was a deal at $38.

  • Report this Comment On May 25, 2012, at 2:10 PM, whereaminow wrote:

    People need to look in the mirror.

    "The desire to get something for nothing has been very costly to many people who have dealt with me and with other con men, but I have found that this is the way it works. The average person, in my estimation, is ninety-nine per cent animal and one per cent human. The ninety-nine per cent that is animal causes very little trouble. But the one per cent that is human causes all our woes. When people learn – as I doubt they will – that they can't get something for nothing, crime will diminish and we shall live in greater harmony." - Yellow Kid Weil

    David in Liberty

  • Report this Comment On May 25, 2012, at 2:10 PM, pbv42 wrote:

    The tragedy is the amount of barnyard byproduct that this IPO has generated. It's a stock, boys and girls, not a CD. I'd be willing to bet that most of the folks who are now moaning & groaning could not have been talked out of buying the stock even if they'd asked anybody who could have given them an informed opinion.

  • Report this Comment On May 25, 2012, at 2:10 PM, truth4u wrote:

    To put all of the Nation's Economic Problems in context; how did the Richest and Wealthiest Country - - which also was the Chief Creditor Nation of the World in the 1970's; become, the World's Poorest and leading Debtor Nation - - in a period of just 35 years? How did China, during the same time-frame, go from being the Poorest Nation in the World, to one of the Richest, today? Why is the U.S., carrying a total National debt of over $15 Trillion Dollars; while China has a Cash Surplus of $3.2 Trilion Dollars?

    How does the successes of State Directed Capitalism in China, compare wiith the successes of unregulated, Predatory Capitalism in the U.S., - - during the past 35 years?

    If the U.S., has to print money to meet it's bond and other Treasury obligations; isn't the Country essentially BROKE and in DEFAULT?

    Is everyone comfortable paying for about 85% of China's Total Military Budget - - with the interest money they earn yearly from loaning us Billions of Dollars, so we can stay afloat! It's happening, you know.

    skeptical rascal

  • Report this Comment On May 25, 2012, at 2:12 PM, swiver wrote:

    I have bought several stocks recommended by TMF that are down to less than 50% of their cost. Didn't buy this one, which is down 20%.

    So, we watch it to see what it does over the next few months......

  • Report this Comment On May 25, 2012, at 2:23 PM, cbeb9 wrote:

    Eric Bleeker: Thank you for this lucid and well formulated article. For those who prefer muddy waters over lucidity you will have your negative critics, but for those who are able to see the big picture you are a welcome breath of fresh. Good light work.

  • Report this Comment On May 25, 2012, at 2:28 PM, RobertC314 wrote:

    Not sure why, but I feel like wasting some time to weigh in. A couple points:

    (1) This changes nothing about Facebook itself. Actually, the fact that they updated their guidance at all is much less "evil" than we are used to seeing from them. It's not their fault that Morgan Stanley didn't see fit to tell everyone.

    (2) No one got "ripped off" except the people who participated in IPO with outdated information. They are the only ones who have a case to complain, and it's not like they lost their shirt, they just didn't get a 30% pop like most IPOs.

    (3) Buying on the first day of trading is NOT participating in an IPO... a fact brokers would like you to ignore. Buying on the first day of trading expecting to make a quick buck is, as many have pointed out, speculation, not investing. As who actually lost money here... see truman1987's post.

    (4) The investment banks clearly manipulated the market post-IPO. How is that any different from any other day, and why is everyone so surprised? Why be angry now and not before?

    (5) I feel better, thanks for reading, or not.

  • Report this Comment On May 25, 2012, at 2:33 PM, truth4u wrote:

    Sound Trader:

    Your Highly Paid Rocket Scientists-Advisors sure got it right when the Great Wall Street Heist took place in 2008. They made a bundle . . . Then, they had the balls to seek a $750 Billion Bailout from U.S. Taxpayers . . .

    Why are, supposedly, the best educated and brightest among us, (Wall Street Crowd - - so they tell us); also, the most immoral and unethical? A recent study revealed that as one acquires more wealth; one tends to become more willing to bend the rules, steal, and to just plain lie.

    We all know that, "Money Talks"; and we don't need to be reminded that there is no longer anything that even resembles a level, or balanced playing field.

    Don't insult us by flaunting your ability to Pony Up big bucks to pay your Insider Advisors.

    Skeptical Rascal

  • Report this Comment On May 25, 2012, at 2:34 PM, jimmymackisback wrote:

    who didn't see this coming? even this fool laid back...

  • Report this Comment On May 25, 2012, at 2:36 PM, snommis69 wrote:

    Pish. This, just like buying any other stock,has it's risks and potential rewards. An investor can choose to investigate and make an educated decision, or to simply toss cash at something "hot". Caveat Emptor. Most people tossing their savings at Facebook did so blindly. They might as well have bought a pile of easy pick lottery tickets.

    This article started out fine, describing how people who had never bought a stock in their life were trying to "get it" on this IPO. THAT should have been the thrust - not the indictment of the whole system.

    Do your research, purchase wisely, understand the risk. We all lose sometimes, even when we DO research. Anyone wanna buy my 100 shares of Somaxon? ;-)

  • Report this Comment On May 25, 2012, at 2:40 PM, drjo101 wrote:

    Thank you for the great article. Everyone in the USA should read it.

    The problem is as big as you describe it.

    Smoke screens, lies and a way for the big boys to get your money. This has become the mantra for big business in the United States. The rest of us are just fools being taken for a ride.

    The real problem is that this invades all the media. How much of the news is real or has it all become just an ad to get the masses ( the muppets ) to act in a way that is profitable to richest people

  • Report this Comment On May 25, 2012, at 2:44 PM, TMFDarwood11 wrote:

    You should have suggested to your friend that she invest a few dollars and join the RYR service at the Fool.

    Frankly, I'm not surprised by any of this.

    People routinely invest in the latest fad.

    According to recent statistics, a significant number of people routinely pay their bills late, can't understand simple math and have no retirement savings to speak of.

    I won't buy facebook shares any more than I'll buy AAPL shares. I don't care who makes the recommendation, or the pap spread by the executives of these companies.

    AAPL achieve extremely high gross profit margins by offshoring to companies with questionable labor practices in a foreign country. By "foreign" I mean difficult to monitor or easy to escape scrutiny, Facebook has been caught with some serious privacy rifts.

    Neither company, despite the rhetoric of the principals involved, is worthy of my money as an investor.

    Will others make money from this? Certainly, some will. But the bulk of the gains will be achieved by management and insiders.

    Sorry, I'll take a pass.

  • Report this Comment On May 25, 2012, at 2:48 PM, TheCommonTulip wrote:

    Wow. Thank you so much for writing this. I have no idea why more articles haven't been written following this news. It's not the fact that the share price sank that is alarming it's the fact that MS bankers were able to withould revised earnings estimates from the general public. How can anyone feel safe investing if this is ok?

  • Report this Comment On May 25, 2012, at 2:55 PM, Borbality wrote:

    Whole situation is pretty funny when you think about it.

    Analysts: WAIT A SECOND, what if it doesn't grow that fast?


    Come on. How often are these "future sales estimates" even in the ballpark in this kind of situation? Especially when looking at a p/e of 100+.

    I'm just not seeing it. The thing was overpriced and the investors didn't bite. Underwriters still find a way to win, because that's what they do. Some litle old ladies got screwed, yes, but so has my grandma for the last 40 years at the Indian casino every chance she gets.

  • Report this Comment On May 25, 2012, at 3:05 PM, osho2025 wrote:

    Some broader observations...

    1.) As investors, we must accept that we are not protected from Wall Street. You are playing against the mob if you would - maybe not above the law, but has arranged to work lateral to it.

    2.) Point blank robberies like what just occurred will continue to happen as Wall street continues to grow beyond the controls of government - and as Americans you can either adapt of move abroad or invest abroad.

    3.) If you are dumb enough to chase an IPO like facebook, money is probably not that important to you anyway so who cares, it is just money afterall.

  • Report this Comment On May 25, 2012, at 3:13 PM, CNXTim wrote:

    The primary way FB can make money is in advertising.

    So the number of real people using FB on a given day is THE metric.

    FB say that is 900 million, a lot of "eyes" for sure.

    Anyone who believes this metric is a fool.

    MZ's most memorable quote;

    "They trust me, the dumb f...s"

  • Report this Comment On May 25, 2012, at 3:18 PM, jwoop66 wrote:

    First of all, there was plenty of info and discussion out there about whether or not FB was a good investment. I did not buy because I know the advertising on there is a nuisance at best. I have never paid attention to it, and most people find it a distraction.

    Second of all, why all the trolls on this site sounding like OWS stooges? If you don't like the free market and the idea that some folks want to invest go back to the huffington post.

    And finally, yes people do get what they deserve. Plain and simple. If you have never invested before and you suddenly want to drop your $40K life savings on FB you are dumb. Sorry if you want to hear it is "the Man's" fault. It is not. It is yours and yours alone. Regardeless of any hype you may have heard from the media or a friend of your cousin, your $40K is your responsibility and you better take care of it.

  • Report this Comment On May 25, 2012, at 3:20 PM, jcarterwc wrote:

    I don't even know much about stocks but when I heard Facebook was going public my first thought was: Why do they need money enough to go public? Don't companies usually go public so they can raise cash to expand? Facebook did not need money to expand so my next thought was, this is just for the guys who got in at the ground floor, especially Zuckerberg, to cash out for themselves.

  • Report this Comment On May 25, 2012, at 3:28 PM, Fiftysomething wrote:

    Caveat emptor

    Rules of Investing

    1. Never invest in anything you don't understand. (If memory serves, this is the reason Warren Buffet gave for not investing in technology companies.)

    Investment banks are in business to make a profit. If underwriting public offerings were not a profitable activity they would not do it. (Neither would you.)

    Institutional investors, considering the large volume of shares they are able to buy, have always been the favored customers of the investment banks.

    IPO's are for the benefit of the company being sold and the owners of the company being sold, NOT the buyers of the company.

    In business, as in life, everyone does not always win.

    Greed often triumphs over logic.

    Does anyone remember a similar company, I think its name was My Space?

    That GM canceled its Face Book advertising before the IPO, a widely reported event, should have had meaning for potential investors.

    Absent any flagrant instances of fraud, I haven't seen any thus far, I can't imagine how the author of this piece feels justified in using the the term "ripped off".

    Caveat emptor!!!

  • Report this Comment On May 25, 2012, at 3:37 PM, Goddessofmusic wrote:

    I read every article the Fool put out before the IPO. You Guys were very unclear. I've always been vindicated in my buys by trusting your advice, and I should have paid more attention to the fact the you were not giving a clear message either way. So I bought a few shares, just to be in on the cultural phenomenon. While I do think that the manipulators should be investigated and perhaps punished for favoring their big clients and flimflamming everybody else, I plan to hang on to my few FB shares, and I suspect they will come up eventually.

  • Report this Comment On May 25, 2012, at 3:39 PM, jmsheehan21 wrote:

    There was plenty of negative information there about Facebook. The Wall Street Journal published an article last week before the IPO entitled "10 Reasons Why You Should Not Buy Facebook (But Probably Wll)." GM announced that it would stop advertising on FB. Various media questioned the long-term viability of the FB model. Besides, nobody who has not sold has lost anything. Maybe, it will go to 600 eventually like Apple. Nobody should buy a stock expecting to sell it a profit on the same day.

    Also, a lot of the companies that had this "inside information" probably bought the stock at its offering price anyhow. Is there any evidence that they did not?

  • Report this Comment On May 25, 2012, at 3:42 PM, hbofbyu wrote:

    Wealth without work. We are learning the formula. If we all tell two friends and they tell two friends soon every man woman and child in America will be rich,

    Wall street bastards.

  • Report this Comment On May 25, 2012, at 3:42 PM, DS31 wrote:


    I'm surprised you went to print on this without fully understanding the process of how investment banks bring companies public. You rightly mentioned that the road show is done by the ibank to gin up interest in the newly minted company: "As the story goes, midway through the customary "road shows," during which companies give presentations to large institutional investors to promote their IPOs, the group of investment banks bringing Facebook public saw their analysts cut estimates of the company's future sales. Cutting sales estimates mid-road-show has been described as "unprecedented" in and of itself. But here's the thing: The banks themselves didn't spread the word far and wide. They didn't give anything close to fair access to the information."

    But right at the end of your quote, you seem to mix up the purpose of the road shows. The ibanks are promoting the stock to future investors. They are not trying to selectively reveal negative information for their most favored clients to talk them out of participating in the deal. They are PROMOTING. But your very next line is, "Instead they used the information to curry favor from their best clients. As Reuters reports, information was "selectively disclosed." But there is nothing for the ibank to gain by selectively sharing negative information during the promotional road show. If the ibank truly believed the stock would not be valued by the market at the IPO level, the promoters could have simply "not promoted the stock" to their best clients.

    But you'd have us believe that the ibankers were telling only some of their clients to 'participate in the IPO but sell it immediately because it's gonna be ultimately perceived by the market to trade lower than the IPO price. So sell into the hype and get out before the market ultimately values the shares more reasonably.' That is preposterous.

    At the end of the day, the only people who have a right to complain are those institutional investors and those clients of the brokerages that where important enough (read: large investors) to receive shares of the deal at the IPO who did not know that future earnings estimates had been cut by the ibank's analysts. But average investors buying shares in the secondary market have no expectation to access an analyst's opinion. Again, you said, "information that was only selectively disseminated and wasn't known by the average individual investor racing to buy Facebook shares." Why do you think average investors are entitled to this information? They are not clients of the firm that employs that analyst.

  • Report this Comment On May 25, 2012, at 3:43 PM, DanAmesbury wrote:

    Come on Bleeker, give me more. Would LOVE to see some actual facts in your story. just "wrote" a story that I heard word for word on CNBC 96 hours ago. Does Fool actually compensate you for regurgitating hearsay???

  • Report this Comment On May 25, 2012, at 3:44 PM, bigfool54 wrote:

    FB will not be around in 5-10 years what are you all talking about... FB is not worth anything it is just a glorified bulletin board if you all know anything about technology,,,the only winner in this is hardware, software and lawyers .. the rest of

  • Report this Comment On May 25, 2012, at 3:53 PM, esxokm wrote:

    Perhaps one of the solutions would be to somehow -- and I don't exactly know how this could be done in a feasible manner -- allow retail investors the ability to buy shares of private companies. Would that level the playing field just a little? At the end of the day, Wall Street will always be able to stay ahead of retail investors.

  • Report this Comment On May 25, 2012, at 3:59 PM, AgingGamer wrote:

    Simply buying Facebook stock at IPO price isn't "stupid". Buying *more Facebook stock than you can afford to lose* is stupid, and/or making it any more than a tiny fraction of your overall portfolio of investments. I would say the same thing applies to any IPO, and I'm a green novice investor.

    Was I excited to buy FB on the IPO day? Sure, mostly because I wanted the experience since I had missed out on IPOs back when I didn't have an easy way to buy individual shares.

    *Disclaimer: I bought a pittance (by my finances) of FB shares on IPO day at $40 a share

  • Report this Comment On May 25, 2012, at 4:00 PM, Lisbet565 wrote:

    I agree wholeheartedly in assuming responsibility for my investments. Still, I can't help but be curious. I'm told Mr. Zuckerberg turned the orchestration of this IPO over to his CFO. Would that be Gideon Yu ? If not, who has succeeded him ? And where the machinations of Facebook executives any more "above board" than the IBs that were involved in the underwriting of this IPO ?

    There has been a substantial "brain drain" from Facebook in recent months. Rats leaving a sinking ship ? I wonder.

  • Report this Comment On May 25, 2012, at 4:01 PM, kabrink wrote:

    Any crimes should be punished for sure.

    But, it's easy to take responsibility for your own actions. Here are three easy steps:

    1. if you can get in the actual ipo shares and you think the company is good, then by all means go for it.

    2. don't buy any ipo in the open market.

    3. if you are going to buy it in the open market anyway, then use a simple limit order.

  • Report this Comment On May 25, 2012, at 4:13 PM, mdk0611 wrote:

    You had the CNBC article, the WSJ article and the announcement that GM was discontinuing it's advertising on FB all within 2 weeks of the IPO. And someone with no knowlege of the stock market wants to put all their downpayment money in FB stock? Sorry, no level of regulation will prevent that disaster from happening. Greed vs. greed + ignorance.

  • Report this Comment On May 25, 2012, at 4:19 PM, danlweber wrote:

    Yes, there is plenty of greed to go around on Wall Street. It's been that way for decades. The FB IPO was not what we all had hoped - and could have been handled better. But Main Street investors have both made & lost money on IPOs in the past - and will in the future. Surprise! Welcome to the markets! Sorry - I'm a fee-based financial advisor with one of those "greedy" firms. I had clients call to get in on the FB IPO. My recommendation was "NO". Many of my colleagues here did the same. My clients were thankful for that advice. Many are too busy working- or prefer to have help managing their assets. "...remember Facebook - fire your broker."? I couldn't let that one pass. Evidently Motley Fool is the only source of good advice? Hey - doesn't Motley Fool offer advice and asset management? Lighten up on brokers, Eric. Some are good - and some are not - just like column writers...

  • Report this Comment On May 25, 2012, at 4:27 PM, PrudentCourier wrote:

    Zuck is responsible because of a failure to be a leader. If this the kind of leader he is, he will be forced out at some point.

  • Report this Comment On May 25, 2012, at 4:41 PM, kabrink wrote:

    BTW, my personal limit order for FB is $15.

  • Report this Comment On May 25, 2012, at 5:09 PM, irwinjj1108 wrote:

    Please instruct me. I was under the impression that shares cannot be sold short during the initial 30? 90? days after the IPO. How were these houses betting against by selling 'short' as the article states?

  • Report this Comment On May 25, 2012, at 5:11 PM, TMFMorgan wrote:

    <<If this the kind of leader he is, he will be forced out at some point.>>

    With majority voting control of the company, that's virtually impossible.

  • Report this Comment On May 25, 2012, at 5:14 PM, ahoythere wrote:

    Hyped up IPO's don't always go up....for that reason..... I'M OUT.

  • Report this Comment On May 25, 2012, at 5:15 PM, ahoythere wrote:

    I think I'll buy dsny instead.

  • Report this Comment On May 25, 2012, at 5:21 PM, Hellespont wrote:

    Those who bought facebook on launch are idiots, the only ones who ever make money on an IPO are the insiders. Don't blame wall street, the blame rests on those who actually bought the stock on launch due to their supreme ignorance.

    Invest in good companies people, not stock tickers and prices. Facebook is NOT a good company, far from it, imho.

  • Report this Comment On May 25, 2012, at 5:39 PM, carolsmithhsa wrote:

    I read this thread and understand many are upset with the underwrtier, NASDAQ, their brokers etc.

    So here is a suggestion for the small investor. If you are truly aggravated by the behavior we observed in this IPO rollout, commit now to buy no stock in any firm associated with underwriting FB or FB stock itself. Period. In the future, buy only shares in companies that already exist and have a track record of earnings that create a REAL PRODUCT that consumers can accept or reject. In so doing, you are including a consumer who has collective clout and who can quickly modify company behavior by buying or not buying products. In IPOs, there is no mitigating consumer pressure already present to calibrate any valuation factor. What we got was hype, changing information as the IPO came to begin and an insider opinion of value. In an IPO, no one is looking out for the interensts of the small investor. So we should not be surprised that inside interests were all that were served.

  • Report this Comment On May 25, 2012, at 6:20 PM, newertoit wrote:

    Thanks to all who said that 'a fool and his money are soon parted' is good and it is fair that insiders have privileged information and banks should recommend one way while acting another. All is fair.... Sadly I will now vote with the 95% to tax the 5% at 90%. They will have gotten what they deserve. Renounce your citizenship, take your money and leave to be an American and an American investor no more. A working middle class will make you forgotten in three years which is much less than this speculator generated recession has cost us already. Seriously, gambling and short term speculation are not the purposes of a stock market, and a tax structure that stifles that is a good thing.

  • Report this Comment On May 25, 2012, at 6:22 PM, epiphanyseeker wrote:

    Analysis I want to see: What happens to Wall Street if all the "dumb money" stops investing ... just says NO to the drug dealers of Wall Street?

  • Report this Comment On May 25, 2012, at 6:28 PM, pacella wrote:

    You forgot one word in your title. ", again "

  • Report this Comment On May 25, 2012, at 6:30 PM, stepsli wrote:

    @wrwhiteal: you are right, this article's author is just part of the CNBC lot - harp on whatever seems to get the most buzz.

    @jchoward88 is right - the negative news has come out a week before the IPO. Any of the retail buyers could have pulled back the night before the IPO and cancelled their requests for allocation.

    Just last week The Fool recommends BAC at $8, and soon the stock dropped to $7, did anyone accuse The Fool of manipulation?

    What the CNBC and Fox anchors should have come out and said was "we are sorry, we thought that the stock was going to get a big pop on IPO. We admit that we were the ones hyping the stock." But no, once the stock turned south, they jumped on the story as if they were there to bring information to protect the small investors."

    A true investor would have waited after the stock opens and then spends the amount that he/she is comfortable investing. Asking for allocation is just playing the craps table, and these gamblers are going to get out after the dice are thrown.

    I think we are witnessing an epic battle between Morgan Stanley and GS. Let's see if Morgan Stanley can take this lethal blow to their Tech IB business.

  • Report this Comment On May 25, 2012, at 6:31 PM, mythshakr wrote:

    "<<If this the kind of leader he is, he will be forced out at some point.>>

    With majority voting control of the company, that's virtually impossible."

    And THAT is why I decided to pass.

    FB is not a public company by any normal sense of the concept. It is a privately held company that allows the public to own a minority interest. FB doesn't have to change a thing or make a dime and the public shareholders can't do a thing about it.

  • Report this Comment On May 25, 2012, at 7:11 PM, crazyeconprof wrote:

    This is a $5.00 stock IMHO. If it goes the way of Myspace its a $.50 stock.

    Shame on any Fool who bought FB. So many better alternatives - for example: gold/silver miners are on sale this month ... ZIRP to infinity means AGNC's 16% divid. to infinity ... or try these "must own stocks" SDRL, CLMT, PDLI.

    How crazy is this world when FB has nearly the market cap of BP (trading at p/e = 5, div = 5%)?

  • Report this Comment On May 25, 2012, at 7:12 PM, DCGuru wrote:

    Nothing like a post mortem. Were you forbidden to say that the IPO price is too high and hence risky? What justification is there to price this mega large cap IPO at multiples of revenue? Is there a growth potential for Facebook to double or quadruple its revenue in the next few years?

    Oh Well. Buyers be ware.

  • Report this Comment On May 25, 2012, at 7:34 PM, Loxly wrote:

    Never bet more than you can afford to lose! In stocks, race tracks and casinos.

  • Report this Comment On May 25, 2012, at 7:53 PM, rambotrader wrote:

    Why does it come as any surprise that the big end of town has insider knowledge or that mums and dads are defrauded of their savings by the business community. It happens all the time and what caused the GFC should still be in the minds of victims.

    It is a disgrace that one government after the other refuses to protect investors or jail crooks in suits because governments are elected and owned by business. In the meantime investors simply have to be savvy and take a bet on the best advice available and their gut feeling making sure always not to ever put too much in any one punt. It is a jungle out there and the (unregulated) sharks are always there waiting to take the savings of average folk.

  • Report this Comment On May 25, 2012, at 9:00 PM, jvill wrote:

    It's interesting how many folks on this thread exclaim "personal responsibility" for folks snookered by a stock that was manipulated by the underwriters, but lets the manipulators themselves off the hook with nary a sideways glance.

    The Golden Rule: those with the gold make the rules.

  • Report this Comment On May 25, 2012, at 9:55 PM, stratmandave wrote:

    I wish we would get serious and invest in things that the world actually needs like alternative energy, batteries, clean air, clean water etc. Everyone, (especially the VC community) is just looking to make a quick buck off of the latest BS Internet fad.

    Concerning FB; anyone investing in a company whose only source of revenue is advertising and is selling at 25 times revenues deserves to lose their money!

  • Report this Comment On May 25, 2012, at 10:02 PM, JGBFool wrote:

    I had no desire to buy FB shares because the company's reported revenues (even the overestimated ones) were nowhere near enough to justify anything resembling the opening price.

  • Report this Comment On May 25, 2012, at 10:04 PM, XMFBiggles wrote:

    I find it interesting that an article about how Facebook took part in ripping the faces off some Muppets has over 1,000 likes on Facebook.

  • Report this Comment On May 25, 2012, at 10:16 PM, TENOFWANDS wrote:

    STIMULUS DOLLARS AT WORK. Where would MS and GS have been without all of their government-enabled liquidity ?

  • Report this Comment On May 25, 2012, at 10:18 PM, JGBFool wrote:

    This article pretty much summed up my thoughts about the FB IPO:

  • Report this Comment On May 26, 2012, at 12:20 AM, devoish wrote:

    Nice article Eric.

    You are not anti-capitalist for describing how the game is rigged.

    Best wishes,


  • Report this Comment On May 26, 2012, at 1:20 AM, TheTycoon11 wrote:

    I put "Buy" order for 10 shares at $39.00 and as I saw the bid climbing, changed the order to $39.99, shut the computer, and went out. I'm finding it increasingly difficult to live in this cerntury at age 83 but am still involved and having fun. I shall watch this thing through. May be I'll put myself in Face Book!


  • Report this Comment On May 26, 2012, at 1:57 AM, AlexOrloff0077 wrote:

    Great article, Eric. Why you didn't look deeper? The whole legislative system is rotten and ineffective - this is why we have crises after crises on permanent basis due to the congress in the first place. Insider trading (congress and Wall Street), subprime mortgage debacle, wide spread lobbyism, huge national debt - just to name a few "achievements" of the congress members. Why presidents can stay only two terms (in order to cause minimum damage) and members of the congress can stay for life (and cause maximum damage)? Just imagine George Bush “serving the people” for life when in just two terms he almost bankrupted the country. We need “fresh blood” in the congress – two terms is enough for both congress and senate, many people agree on that but here is the problem – the members of the congress don’t think so. The initiative to cut to two terms should come from the congress member or from the president. Please ask your congressman or congresswoman to express a good will and show how he or she cares about the country and the people. I did – so far no response yet.

  • Report this Comment On May 26, 2012, at 7:16 AM, billjam wrote:

    When people asked if I was buying Facebook I told them "NO! Not now. Not ever." May be a fun social tool but no evidence it's a real business capable of producing the profits to support the insane valuation Wall Street is putting on it. Moreover it's likely to suffer the fate of MySpace in a few years when it's fickle customer base moves on to the next hot thing.

    Wish I could have talked to the lady wanting to put her life savings in FB. She probably got in near the first day high. I could have saved her $10,000.

  • Report this Comment On May 26, 2012, at 8:17 AM, bigcg98 wrote:

    Yes, people are truly amazing. We all want the big score, but when we lose or shirts going for it, we cry foul. On the other hand, those who luck out and make some money at the game point the finger at the others and shout "stupid!" That is, until they lose their shirts on the next big trade, then THEY cry foul! The Wall Street jerks say, "don't invest in the stock market unless you do your DD (stupid term, that)." Yet, the govt uses financial repression to force the average joe to invest unless he wants to end up with a nest egg that can't keep up with inflation! ect ect ect

    Here's a few thoughts:

    -Don't trust anybody. People in power are generally cheats.

    -There are always going to be Bernie Madoffs and Mark Zuckerbergs who get what they have by stealing it from others. Unfortunately, there will always be the people who will get in bed with them at the promise of an easy (and usually illegal) buck, who then also usually get what they have coming to them.

    -IF IT LOOKS TOO GOOD TO BE TRUE, IT PROBABLY IS!!! (ancient Chinese proverb,... I think.)

  • Report this Comment On May 26, 2012, at 9:55 AM, srwm4 wrote:

    This is what happens when you agree to buy something without caring what price you have to pay for it. There were plenty of stories about just how over-valued Facebook was at its IPO price. Anyone who bought this stock bought it in spite of the financials, not because of them, so I really doubt that the change in estimates actually played a part in any of the decisions of retail investors to partake in the offering.

  • Report this Comment On May 26, 2012, at 1:17 PM, caribeq wrote:

    Thought this was a very good article.. well thought out and making a lot of sense. The only thing I feel somewhat leery of, is - why after closing the article with 'Take Control of your Financial Freedom" aka 'manage your own money'... - is the article followed by an AD to "Let MF Manage your Money"...?? Dichotomy? or marketing prevails?

  • Report this Comment On May 26, 2012, at 1:36 PM, TMFBent wrote:

    I'm trying to figure out how Wall Street ripped off Ma and Pa here. Even this higher-than-normal retail allotment for the IPO only meant 20 to 25% of the shares going to retail.

    Wall Street pretty much ripped off Wall Street here. And I think it's tough to argue that any kind of more widespread disclosure would have changed retail appetite for the stock.

    "“The demand is insane,” says one person at a retail brokerage. “You could write that Facebook was the worst company in the world, and retail would still want the stock."

    Ma and Pa were lining up here to get in on a sure thing, and they didn't get it, and now everyone is shocked, SHOCKED that all sure things don't turn into sure things. As one poster noted: the stock is down 20%.

    Wall street truly rips off Ma and Pa in worse ways, on a much bigger scale, every single day of the week.

  • Report this Comment On May 26, 2012, at 1:47 PM, TMFBent wrote:

    And I guess I'd ask one more question. Who was really hyping facebook? Was it really Wall Street? Or was it the media? How much responsibility does TMF have for pushing retail investors into a Facebook frenzy?

    A search on of articles mentioning Facebook brings up more than 1,600 results. Most of those are 2 years or old younger. Let's see here, we've got: "Facebook Rocks." "Is Facebook the Perfect Stock?" "How Facebook is Like Apple" "Should You Buy Facebook" "Facebook Creams Twitter." It goes on and on.

    I think anyone who bought into this IPO deserves what they got, unfortunately. But if there's blame to be placed for the frenzy itself (which is the REAL reason the retail investors were lining up for shares at any price), our hands aren't so clean here.


  • Report this Comment On May 26, 2012, at 2:47 PM, Medrano1423 wrote:

    Motley Fool railing against what Wall Street did with Facebook is very much the pot calling the kettle black. I've foolishly followed the Motley Fool's hyped up BS into plenty of investments that have quickly been clobbered by shorts (ARCO, NFLX, WPRT to name a few). Now, instead of using Motley Fool for help with buying stocks, I use them to know which hyped up ones to short! The Fool is no better than Wall Street in that their premium services sometimes advocate for shorting stocks that their less premium services advocate as buy buy buys (and they will tell you as much, as if that made it any better). In the past, I believe that Motley Fool provided reasonable and often sound advice. Now, however, they spam my inbox with new ideas that are sure to help me to retire wealthy! What they've done instead is to make a fool out of me and a mockery of my hard earned savings. I hope that the long run will prove me wrong. But my fear is that the Motley Fool has become, in some ways, a helpful tool for true market players to efficiently take advantage of amateurs.

  • Report this Comment On May 26, 2012, at 4:40 PM, michaelgoal2025 wrote:

    It never seems to fail that anything that to good to be true is just that. The "so-called " Financial Wizards have screwed us again, but we can only blame ourselves. We look to the pros to give us good and truthful advice, but it is as it always is the greed get greedier at yours and my expense. Need to sue them all not just Facebook..

  • Report this Comment On May 26, 2012, at 5:30 PM, Chinaz wrote:

    I skipped FB because I have a financial adviser who steered me away. I need an expert helping me with my investments. Just like I have expertise in technology he has expertise in finance. Investing in equities is not like opening a savings account but unfortunately for them, too many Americans are financially ignorant thinking there is no difference between the two. Financial markets have a historical tendency to work without ethics or morals, maximizing profits at the expense of anything in their way. That's the nature of the beast. We need to decide what is best for society and prosperity then balance the two with the rule of law to control finance for societies greater benefit. If the markets are allowed to return to the wild west days of the 1920s which is their natural tendency, it will be a market rigged for the benefit of the very rich & connected at the expense of everyone else just like it was then. And we all know how that system turned out.

  • Report this Comment On May 26, 2012, at 6:24 PM, geckohale wrote:

    I get a real chuckle out of all these conflicting (and often self-serving) statements. I'm one of those "idiots" or "fools" many of you have decided should not invest in anything. I did a limit order for the FB IPO because I advertise on FB a lot and see the absolute unswerving devotion its millions of followers have. So why not?

    I figured it was worth the risk and don't plan on selling it anytime soon. I bought Apple stock when it was "too risky," too, and have yet to regret that.

    What I do regret is not buying Google, eBay and Amazon stock when it went public ... even though I thought they were good (but unproven ... duh) ... those were obvious mistakes, but that wasn't obvious at the time. So why shouldn't I buy at an IPO? Sometimes you can get priced out of later action.

    You shouldn't be so condescending ... as one person pointed out, what would you oh-so-big-wigs do without all we "dumb money" people supporting your profit habits?

    I'm not unhappy with my 20% loss, because I believe the stock will eventually go up. And I'm not in an "instant gratification" hurry, like some of you seem to be.

    Just my 2¢ from an obvious "fool" who bought into the FB IPO. ❀◕ ‿ ◕❀

    Note to @kahunacfa: who said: "People who visit are not at all interested in commerce, they want to connect with their FB Friends, that is all." ... I don't think you spend enough time on FB. There are definitely two sides to FB; it's not all just "friends" anymore.

  • Report this Comment On May 26, 2012, at 10:59 PM, BlackbirdSC wrote:

    I feel personally vindicated that I steadfastly resisted the pressure to invest in this "chance of a lifetime" from a brokerage, and simply and repeatedly said no. My only regret, because I could not be elligible to borrow and short shares is that put options are not yet available on what I truely feel is a $10 stock.

  • Report this Comment On May 26, 2012, at 11:48 PM, tkiguana wrote:

    If you take the Kings shilling you do the kings bidding. The brokers in the large trading firms are faced with a major problem. Their firms review and nurture companies who engage their services. The companies take major positions in these stocks. Having nurtured them for about 6 months they send ou a sheet of "Buy Recommendations", with these particular companies on it. They then "urge" their brokers to sell these stocks and make huge money just on the trades. Brokerage houses make it two ways: First investing and wholesaling the stocks and then retailing them.

    The broker is a willing pawn in all this and the consumer becomes the fool. In so many cases the broker is selling the property of the firm he works for and not really advising his or her client.

  • Report this Comment On May 27, 2012, at 12:06 AM, ptlam wrote:

    For a funny take on the FACEPLANT IPO

    a youtube video

  • Report this Comment On May 27, 2012, at 1:51 AM, TMFRhino wrote:

    Hey all,

    I'm Eric, the author of the article... I've read quite a few of the comments here...

    To all who praise,

    Thank you, you're too kind

    Too all who hate,

    You're MEAN :), but there's probably a sense of truth to your comments. I'm free to admit not knowing the full process that was involved... I called it as I saw it. I learned a lot from what I read... I thank your for your comments (and see below).

    In total,

    I wrote this article in large part because of information I'm sworn not to disclose... Also, I spent as much time as I could gathering personal accounts from individuals and asking about their broker relationships... That might only be a dozen people, by no means is my information perfect. However, from information above and many of those conversations, I do feel that many retail investors were hurt in the process. Not all, and many BEGGED for Facebook... People DID have this "coming to them."

    As for TMFBent,

    We held a live chat before the event that offered some of the best advice around and while I was not involved, when I watched the rewind, I was proud of our offering of that event. In terms of engagement, it was much higher than any of those cherry-picked headlines you selected. And I'd appreciate some content beyond the headlines you selected.

    In closing,

    My problem isn't with ravenous engagement with retail investors.... They obviously had it coming in this particular event. They would for any stock like this. My problem is with the selective disclosure that doesn't put people on equal disclosure. There's many accounts of a wide discrepancy between the amount individual investors were willing to pay and institutions, yet by many regards they had dissimilar information.


  • Report this Comment On May 27, 2012, at 1:55 AM, 2008Rehab wrote:

    Chinaz ... spot on.

  • Report this Comment On May 27, 2012, at 2:44 AM, TMFRhino wrote:

    Just as a quick note: sworn not to disclose being the impetus for me writing the article. That's more... Hearing about the process made me upset and wanting to dig into more available information... All information discussed above is from the articles cited (and directly linked to). I did my best to link out to primary sources on every statement. Now again, thank you for the discussion all.


  • Report this Comment On May 27, 2012, at 3:10 AM, ravens9111 wrote:

    Don't worry. There will be a nice class action lawsuit for retail investors to get their money back. After an SEC investigation, the investment banks will pay back peanuts for the money that was lost. If it goes to court, in 5-10 years, the lawyers will take all the money and everything will be forgotten. Unfortunately, the retail investor will get nothing but it will make it look like something was done when in reality the investment banks get a slap on the wrist. The good news, if there is any, is that future IPO's will most likely be underpriced as retail investors that got burned on the FB IPO will be reluctant to get in on a legitimate opportunity. Keep an eye on the Kayak IPO. That should be a winner. I feel sorry for those that lost money on the FB IPO, but you can't change the past. Anyone who dumps 100% of their life savings in a single stock is asking for trouble. Any broker that would even allow that to happen should have their license revoked.

  • Report this Comment On May 27, 2012, at 10:31 AM, TMFDarwood11 wrote:

    @Fiftysomething, re: "Caveat emptor Rules of Investing" Thanks for reminding me of these.

    I'd like to add that probably the first thing to learn is that there is a difference between gambling and investing. Another is to attempt to keep one's emotions in check. If emotions are in play, it's probably best not to call that broker or shut down your PC before one does something they will regret.

    I think it's useful to ask oneself "What is the purpose of the making that investment, both buying and selling?" By the nature of the name 'invest' it is neither entertainment or sport or a social activity.

    To answer the question posed, one must have a sufficiently developed level of self awareness. In other words. it's necessary to observe one's thinking processes. In other words, to listen in on the internal conversation going on in one's head.

    I wish I could have taped mine back in 2007-8!

  • Report this Comment On May 27, 2012, at 10:51 AM, sybil50 wrote:

    Fortunately for me, I have always thought the Zuck lacked ethics in light of the underhanded way he started FB andso avoided the website and the IPO. All this does for me is provide summer reading.

  • Report this Comment On May 27, 2012, at 1:13 PM, Fishnloaves wrote:

    Nothing in this article should surprise anyone reading it. The tragedy is the context- Facebook reached out to their 'customers' the average Joe, and fleeced them. Let's face it the reason the strategy worked is because they and their underwriters took advantage of the nature of their relaionship with their customers. I find it kind of ironic that Zuckerberg has had trouble figuring out ways to get more revenue out of his massive user base, until Wall Street showed him how.....

  • Report this Comment On May 27, 2012, at 1:48 PM, Duthugemunu wrote:

    How times have changed! When the writer, Rudyard Kipling, was about to go on a world cruise he dropped in on his bank in London about some matter relating to his account. His bank manager advised him that since he had a substantial balance he could consider withdrawing it and investing in the share market. Kipling did not do anything about it before his ship sailed. When the ship reached Hong Kong and Kipling went ashore to the bank's branch/agent, he learned that his bank had gone bust and he was insolvent. His bank manager had seen this coming and tried without success to save Kipling from losing his funds.

  • Report this Comment On May 27, 2012, at 3:40 PM, vrpirata wrote:

    This article just add to the fact that get rich fast doesn't work. I have learned my lessons from the past and decided to stay away from FB. FB valuation sounded too much like a publicity stunt.

  • Report this Comment On May 27, 2012, at 4:02 PM, medcingris wrote:

    Consider that Joe Nocera (NYTimes) had it right! It is usual for the investment bank to set the price of an IPO artificially low. The special people then get to resell the stock quickly at huge profits, which they keep. Who loses? The company that got the artificially low price for its stock. Now, this time the capitalist system worked perfectly. The clever insiders paid a price higher than the company seems worth to even enthusiastic investors, and they may, or actually did, lose money. Are we supposed to weep for these fans of unregulated free markets, or consume taxpayer dollars to assure that they will always make a killing? That would be government interference with the workings of the free market. If we go there, and they can recoup their losses, will they then share their huge profits with the companies they undersold? Or, is government regulation A Good Thing only if it protects insiders?

  • Report this Comment On May 27, 2012, at 5:28 PM, ccaylor wrote:

    Far better a muppet than a maggot.

  • Report this Comment On May 27, 2012, at 6:18 PM, TCNFool wrote:

    Blah blah blah.... Bottom line - the ridiculous price was rationalized by a ridiculous earnings forecast. When both the company and the lead analysts said the earnings forecast should be lower, the ridiculous price should be commensurately lower. But no! Both the company and the investment banks preferred to keep that information to themselves so, once again, they could fleece the investing public. The game is totally rigged, always has been, and public investors are just along for the ride. This time, material information was indisputably withheld, which represents securities FRAUD. The bigger shame is that the SEC won't do a thing. Meanwhile, FB execs knew what was happening and their greed turned a blind eye.

  • Report this Comment On May 27, 2012, at 7:40 PM, TMFTomGardner wrote:

    I thought this was a fantastic article. I'll also add that I love that we can offer in-depth work like this, sustainably, for free. Great job, TMF Rhino.

    I'll also say that I've found the comments fascinating. For anyone who wants to learn, I recommend going back, re-reading all the comments, and taking the vantage point that virtually everyone has some piece of the truth. . but only a very few have substantially more than anyone else. (Furthermore, those with the most certainty and edgiest of tone usually have the littlest pieces of truth.)

    Here's my shot at saying something useful.

    If there was any selective disclosure, then the underwriter and/or Facebook are going to face legal troubles. If there is a class action, of course, investors will end up with very little. But at least a precedent will get set (whether it stands the test of time, who knows!).

    Against that, it's obvious to me that Facebook made the decisions to optimize the capital raise. This looks like an IPO run aggressively by the finance team and likely the founder's relentless long-term drive. A few bridges of relationships may be burning, but the company just raised $16 billion (and frankly, I think that buying the Opera browser technology may prove brilliant). Facebook looks to have made the decisions to get more capital now in exchange for facing some PR risk and disgruntled short-term traders (on the institutional and retail side).

    I wouldn't be surprised if years hence we hear that Sheryl Sandberg didn't sign up for this approach. That she would've favored less capital raised, big momentum going through the offering and first year, and a lot of happy stakeholders planning to double-down on their connections to Facebook. Looked at over the next 5 years, that approach might be the best for Facebook. But looking out over the next 50 years, maybe the right call was to go with the hard financial approach at this single point in time.

    Time will tell. But this experience has taught me that the Facebook leadership team may talk about creating great stuff first and being financial second. . . but that doesn't entirely ring true for me. I see this IPO experience and their extremely subpar mobile offerings as indications that they will kick "high quality" and "brand friendly" to the curb. . .if financial sturdiness is put at risk.

    Remember, Microsoft took this approach and it was utterly golden for them in the first 15 years of their public-market journey. Their financials-first approach created the rising tide of dislike that, I believe, fed fuel to the Justice Department. . . whose ruling opened the door for massive competition. I don't know how this approach will play out for Facebook. But I would say that I find it less objectionable than fascinating. I wouldn't have played me cards the way FB did. . simply because I think that at the size and circumstance of their company, cash actually means less than The Love.

    We shall see.

    All of these thoughts came for me because Eric Bleeker wrote such a strong article backed by research leading to a really interesting argument. Thank you.

    Tom Gardner

  • Report this Comment On May 27, 2012, at 9:14 PM, xbows wrote:

    Facebook is a great social media platform, a great website, a great way to connect and share. It is NOT a great business. The company faces significant challenges in terms of producing revenue in the long-term. Not every brilliant, innovative idea automatically translates to a financially successful business. Americans tend to automatically think that every success leads to money - this is delusional thinking. I will never invest money in Facebook...there are so many better opportunities out there for growing your money. It's typical herd mentality to think that Facebook is a good way to get rich.

  • Report this Comment On May 27, 2012, at 10:57 PM, cowboycalvin wrote:

    I hear a lot from from people that don't like Jim Cramer, but I'm glad I listened to him about Facebook. I heard him say a day or two before the IPO that we should stay away from it. At least in this case, he gave some good information.

  • Report this Comment On May 28, 2012, at 7:46 AM, beachboy1 wrote:

    Facebook wanting their IPO to go at top dollar is expected. I will say however the Banks shenanigans to gain profit for themselves is manipulating. Where are to Congressmen now how about investigating your bailout friends?

    Read other interesting articles at

  • Report this Comment On May 28, 2012, at 7:54 AM, TruffelPig wrote:

    I didn't short FB but I did short MS. The one group which really lost any credibility is banks and brokers. First JPM loses billions in London because of a certain wale, now this disaster by MS and FB. Look at the new proud price tags the stocks of those companies carry. Euro crisis not over. Shorting banks is a no-brainer.

    (This is trading, not investing. I am 95% long.)

  • Report this Comment On May 28, 2012, at 7:56 AM, TruffelPig wrote:

    Oh, look here, MS may offer refund for burned IPO victims:

  • Report this Comment On May 28, 2012, at 8:08 AM, dave06516 wrote:

    Recently the Boston Fed published "Why Did So Many People Make So Many Bad Decisions? The Causes of The Financial Crisis" that explores reasons for the housing market devaluation, examining twelve assumptions or beliefs. I have summarized the report for your convenience and will expand upon the work in future writing and commentary.

    The comparison to the Dutch Tulip Bubble of the 1600's is most interesting, as the real estate bubble has been compared to a collective mania and belief that prices can only rise.

    A Black Swan defines an event or occurrence that surpasses or exceeds what is normally expected of a situation and that would be extremely difficult to predict. Nicholas Taleb, a finance professor and former Wall Street trader used this term. "Outbreaks of irrational optimism and unsustainable returns have been experienced repeatedly throughout history though no robust theory has emerged to explain these episodes (1)

    A similar perception is experienced by people who buy into gift tables, pyramids, and other get rich quick schemes that are impossible to maintain due to the lack of support. A pyramid being build from the bottom up best visualizes this lack of support. When there are not enough blocks to raise the lowest level, the pyramid can grow no higher. Lack of continued growth creates a change of participant perception. When blocks begin to be removed the pyramid becomes unstable.

    Lets begin to consider the twelve assumptions:

    1 Mortgage investors had more information than ever due to the Internet.

    2. Investors understand and accepted the risks. (5)

    3. Investors were optimistic about house prices since 2000.

    4. Mortgage market insiders were the biggest losers.

    5. There were little new concepts in mortgage markets in the 2000's Many of the ARM product like 2/28's and NIV had been around for years.

    6 . Government policy towards mortgages did not change significantly between 1990 and 2005 after the value run ups of the late 1980's.

    7. Resets of adjustable-rate mortgage resets were not the lone cause the foreclosure crisis. No Income Verification Loans and certain appraised values contributed to the increased valuations as well "84% of foreclosed borrowers made the same payment at default as origination"(6)

    8. Originate to distribute market motivation was an existing mortgage business practice and a significant contributor to market velocity. (4)

    9.Complex financial products have been widely used for decades.

    10. No mortgage was “designed to fail. The conditions that the Adjustable Rate mortgages were supposed to be refinanced under did not occur. Adjustable rate mortgages actually reset lower in products originated in 2005-2007 and were supported by terms that prevents the ARM from going lower than the original rate, protecting investors (3)

    11. Mortgage market outsiders (individual investors) were the biggest winners who refinanced property based on increased values then took the cash out, Homeowners who refinanced and bought consumer commodities instead of improve their property created a larger debt to value ratio in their own portfolio.

    12. Bonds backed by mortgages did not create the problem, Bonds in collateralized debt obligations did. (6)

    (1) Foote,Gerardi,Willen 2012 pg 4

    (2) Foote,Gerardi,Willen 2012 pg 6

    (3) Foote,Gerardi,Willen 2012 pg 6

    (4) Foote,Gerardi,Willen 2012 pg 12

    (5) Foote,Gerardi,Willen 2012 pg 16

    (6) Foote,Gerardi,Willen 2012 pg 21

  • Report this Comment On May 28, 2012, at 8:15 AM, CMFSoloFool wrote:

    Right, so these are the same people that engineered the financial collapes in 2008, and bilked $trillions from taxpayers. Now they rip off another a few hundred million.

    If no one went to jail for the 2008 crime, what makes anyone think they will be punished for this little trist?

    The SEC is run by bankers, and bankers themselves are selected to work at the SEC. They are one and the same. The wolves have been in charge of the hen house for decades. Every once in a while they make an example of some sucker for public display, like Raj or Gupta, for ripping off a couple of million. Meanwhile they continue to rape the public for $trillions.

    Don't just fire your broker, read and learn and get a grip of your investments and do your own research. Otherwise, just stay home and buy an annuity or a CD. If you're not prepared to lose some money then don't invest in the stock market.

  • Report this Comment On May 28, 2012, at 3:28 PM, subright wrote:

    Wall-street robbed America? Give me a break. The underwriters were well within their means to negotiate a green shoe clause as protection. SEC hasn't found them guilty of any withholding, free riding, etc. This is simply the majority of amatuer retail investors making a gamble on a public offering of c.s. that brings up red flags for many educated investors. Most savvy investors I speak with shorted facebook from day 1. Saw this headline and wanted to briefly share my thoughts.

  • Report this Comment On May 28, 2012, at 5:15 PM, Suavesoft wrote:

    I have no sympathy for anybody that lost money on this IPO. Facebook manufactures absolutely nothing. The idea of a blog paid for by advertisers is nothing original and easily copied. Why hasn't a Facebook clone been succesful yet? Because the people have shown their ignorance in the IPO chaos. When they finally figure out that Facebook is worthless, then something will replace their beloved Facebook.

  • Report this Comment On May 28, 2012, at 9:04 PM, luckyspike01 wrote:

    This IPO was different, in that there seemed to be more shares offered at the last minute, way past the cutoff. Then it opened at $42, but dropped like a stone to $38, etc. I think they must have done some things differently on this one, and they had a lot of pros with inside info selling even before FB opened. That probably contributed to the mess at the open at the NASDAQ. I watched it all during the week out of curiosity; as late as the next Thursday there was a trade placed to buy at $42 ... maybe still catching up from Day 1? My brokerage had a note posted even thru Sunday that they are still trying to sort it all out. There was way too much hype on this one, but at least we got some relief from hearing about AAPL. I'm a small investor and I like to invest in companies where I like the business model, and I like their management. Then I like to invest in the company at a good price. So this IPO had 3 strikes against it for me. But you can see that something wrong went on in this IPO, and I can see how it would be discouraging to investors. I also don't think Martha Stewart should have gone to jail for what she did, and I think they tried to break her spirit,and they did not succeed. Go Martha!

  • Report this Comment On May 28, 2012, at 9:59 PM, 62Morgan wrote:

    Remember, EVERY SINGLE REPUBLICAN in the House of Representatives voted against Dodd-Frank. Even though the bill passed, the republicans (with Wall Street's lobbying dollars) are still fighting the battle by weakening the rules that effectively determine how "reform" will ultimately be implemented. Keeping information from the public should be a crime punishable by hard time,...lots of it.

  • Report this Comment On May 29, 2012, at 12:15 AM, KKoleto wrote:

    Maybe I'm oversimplifying: Guy comes to your house with a pretty box. Says it has good stuff in it and it's yours for $38. Do you ask how many boxes you can buy?

    Are you kidding?


    didn't buy any boxes

  • Report this Comment On May 29, 2012, at 4:24 AM, miclombardo wrote:


    […] the burnt customer certainly prefers to believe that he has been robbed rather than he has Ben a fool on the advice of fools. Even Wall Street men themselves tend to encourage the idea. They are ever ready to confide to you what they know of the inside dishonesty of someone else. Faced with the huge losses "investors" have suffered, their egos subconsciously suggest to them that it is better to be regarded as a Machiavelli than as one who has spent his adult life engaged in mumbo-jumbo."

    Where are the customers' yatchs?, Fred Schwed jr.

  • Report this Comment On May 29, 2012, at 10:05 AM, atkinskd wrote:

    So when do you suppose we'll petition our representation to outlaw this kind of thing? It could start now with us - those of us with just enough info to be a shade better than dangerous! Our stock market needs to be changed from a casino to market. While investing shouldn't be roulette (craps I guess) it currently is. Betting on losing horses and winning should be against the law. Soros has published that this very thing is how he made his fortune, by Undermining an economy to a winning position.

  • Report this Comment On May 29, 2012, at 10:45 AM, aventris wrote:

    This is tragic. However, the main complaint is that the "little guy" only had the information in the prospectus. How many of them actually read the prospectus? Probably less than one percent. If the prospectus had been updated, they probably wouldn't have read that either. They were just buying because FB is where they hang out most of the day. They love FB, so they thought it was a good investment. When GM pulled their $10m contract just before the IPO, that was a red flag - at least to anyone paying attention.

  • Report this Comment On May 29, 2012, at 8:43 PM, imexa26 wrote:

    Has anyone even considered that the membership of FB is much exaggerated ?

    Lots of people worldwide have once signed up, but have thereafter decided not to use FB any further, but their initial membership is still being calculated, regardless of whether the 'member' uses the service now.

    Obviously I can not state what the percentage of these non-users is exactly, but I bet that the number is quite large.

    This would warrant an other independent investigation,

    and the result may prove to be rather 'interesting'.

    It may also result in another slide of the share price.

  • Report this Comment On May 30, 2012, at 11:57 AM, worms27 wrote:

    Before the debacle of banks in 2008, my brother inlaw, a well respected advisor for eddie jones talked me out of Apple for BOA. I CAN believe they are out for themselves. I have not spoken to him since. He had to have known what was about to happen. Now everything I invest is self taught and earning money most days.

  • Report this Comment On May 31, 2012, at 1:16 AM, drborst wrote:

    I really enjoyed the article. Read it because another fool writer called it possibly one of the most read fool articles ever.

    Then the irony of the conclusion hit me. I read about conflicts of interest on wall street, and how investment banks are set up to fleece individual investors, and the solution to this is to wake up and take control of your investing.

    How would one do that? Would it be by reading articles at the Motley Fool? (as everyone who reads this has done), or by taking a step further and opening an account with Fidelity, Schwab, E*Trade, or one of the other brokers whose ads on this page paid the author's salary. (is the conclusion a conflict of interest? where does it end?)


  • Report this Comment On June 01, 2012, at 5:55 PM, WileyCyote wrote:

    When a company or corporation gets a lot of attention (positive or negative) the first person the press normallu seeks out os the CEO,FOO,VP ETC.

    When Facebook hit the street and things began to happen (and Still are) Mr. Zuck was nowhere to be seen.

    Wherefore art thou Mr Zuckerberg ??????

  • Report this Comment On June 01, 2012, at 6:37 PM, fishinblues wrote:

    I hate FaceTook.

    All you dopes can have all your info traded for Zuckman's benefit. Leave me out.

    He's laughing all the way to the bank, and now he and his MS "advisors" sucked you in to "investing" in his website. This is really hilarious.

    Obviously I'm a veteran of the internet bubble pop & crash from 12 years before, Seen it all before. Of course, I'm just a dinosaur and know nothing...but I still have my money. "A fool and his money are soon parted" so they say. I'd rather be a dinosaur - like say a T Rex, than to hand over my cash to bandits with a smile on my face.....

    Now all the new Wall Street fodder line up to make BIG BUCKS on another website with no real business, How do you like your -6% "investment" loss today?.

    Learn to love it. "Yes sir, may I have another?" will be your battle cry!!!

    How will you feel when your nest egg is slashed IN HALF???. Remember no? Just us dinosaurs remember that - or maybe we are more like elephants?...hmmmmmmm..........I'll let the philosophers sort that one out.

    Morgan Stanley saw the turkeys coming from a mile away and loaded up for a BIG TURKEY SHOOT! Heh heh - they bagged enough turkey to feed themselves for years... Of course, for greed hogs, enough is never enough...Some things never,ever change, but there is always a new bus of fools pulling into the station wanting to make the BIG BUCKS!

  • Report this Comment On June 02, 2012, at 8:55 AM, shirtbrigade wrote:

    Show me an IPO or any public company that does not have disclaimers in their 10K, s-1, 10Q and so forth. It is intellectually dishonest to even suggest that an IPO with a disclaimer about sources which MAY slow growth, excuses the price target for the IPO set high (for shorting) by those who know more than has been disclosed. Of course, the Supreme Court, in Dura v Broudo, will say these investors had a chance to sell, at a profit. So they "had their chance". And its "the market" that made the stock go down. Not the stock itself. See? They are all wise, all knowing. When this nation goes bankrupt, we can sell their building and convert it into a public latrine. It will be as fitting as the fall of rome. And let us never forget, the Senate is no longer trading on inside information, only their blind trusts. And hedge funds have nothing to do with naked short selling. So the Supreme Court rules that anyone or any entity can give all the money they want to, to any political campaign. And Corporations have rights, given their money, more rights than individuals. Connect the dots. This nation, by the people, for the people, has re-founded upon intellectual dishonesty.

  • Report this Comment On June 02, 2012, at 9:09 AM, biffbiffbiff wrote:

    Once again - it's people greed - just like the housing bubble - that has caused people to lose money (in gthe short term) in Facebook.

    And what do they do - like this silly author - blame someone else.

    Yes, she wanted to put her life savings into Facebook, why? Out of greed, that's why! And it didn't go up so now she's mad.

    The sad truth is Facebook will be a good investment - long term - but she will have long sold by then - another act of stupidity.

    Just another person, along with the author, who grew up with an entitlement mentality.

  • Report this Comment On June 02, 2012, at 10:33 AM, captainccs wrote:

    >>>Sadly, she wasn't the only one asking that same question. It was being asked by millions of investors across America.<<<

    These people are NOT "investors" and the author is further confusing the issue by calling them "investors." The right qualifier for them is "ignoramuses." I bet she spent more time in picking out panties than on the IPO. Anyone who didn't read and understand the prospectus has no one but himself to blame. Caveat emptor: buyer beware, investor beware.

    There is plenty real crime on Wall Street that writers and the authorities should go after such as short selling which, sadly, The Fool seems to condone blaming the victims instead.

  • Report this Comment On June 02, 2012, at 10:47 AM, spky wrote:

    CNBC hyped this for hours, day after day, week after week. Then they turn on the bankers afterwards.

    The hype was geared towards "the biggest ipo ever".

    They made it sound like it was something you had to be in but would occasionally sprinkle in a caveat here and there in an attempt to keep their butt covered. They were the MC for the banks and now are the policemen. The hypocrisy is incredible.

  • Report this Comment On June 02, 2012, at 1:49 PM, nvstnu1st wrote:

    There was a much bigger crime committed here than selective disclosure of information. Being a former broker during the dot-com bust we were always on the look out for "Pump and Dumps". What you have here is a classic pump and dump. FB is another Enron. Whether it is accounting scandals or valuation scandals it is irrelevant. The stock is almost worthless.

    Wall Street used the very nature of social media to promote a stock that has a completely empty set of fundamentals. They knew that social media would promote the interest of this stock enough that they could sell this at any price. FB at this price is a junk stock- a worthless company - and wall street knows this. Selective disclosure would have only been relevant had the stock came public with any level of underlying fundamental values.

    This stock at best is worth about $10. There is a gentleman going to prison next week that at one time rang the opening bell of the NASDAQ for securities fraud. The fraud committed started with promoting a stock who's underlying fundamentals were lied about. Many people go to prison for this; Bernie Ebbers as well as the crew from Enron can tell you all about this.

    Wall Street pulled off the ultimate pump and dump and what is so clever about it- they have the public debating over issues like selective disclosure and NASDAQ trading delays. Here is a thought - erase those issues and you still got taken. Even without the earnings growth slowdown - FB is worth about $10 a share; maybe $15 if you convince yourself of fantasies. It will eventually get there while you debate selective disclosure.

  • Report this Comment On June 02, 2012, at 11:47 PM, brillio wrote:

    What an incredibly biased and uninformed article! From a source that should know and understand how the underwriting process works, not once did you point out that the FB deal was oversubscribed by 3 to 4 times the available shares. Nor did you point out that it is the undrwriting syndicates responsibility to gather the highest price and greatest proceeds for their client - Facebook in this case - not to provide for the clients of every brokerage firm in America to take part in a huge "pop" in the price. If you took the time to properly educate people, you would make them aware that a "pop" in the price of any IPO means the underwriter did not do the job they were hired to do.

  • Report this Comment On June 04, 2012, at 10:58 PM, neutrinoman wrote:

    Listen to lots of voices, especially the ones dissenting from the sell-side consensus emanating from Wall Street. Their day is made when they see naive muppets walking through the door, or logging into their brokerage accounts.

    There were buy-side analysts stating emphatically that FB wasn't worth more than low 30s, at most, and best bought in the low to mid-20s.

    Where is FB's price now? This has happened before.

  • Report this Comment On June 07, 2012, at 7:00 AM, thidmark wrote:

    If money were Frisbees, Facebook investors would be dogs at the park.

  • Report this Comment On June 07, 2012, at 5:26 PM, Alveyro wrote:

    Dont ever invest in speculative stocks, its a lesson to learn, only invest in secure, long term lasting businesses at the right times, that means when there is big, big pullbacks, always be aware that this is a ¨dirty business¨ where the So call" Big dogs¨or Pimps, move the markets anxiety on their best interets, when they tell you- is time to sell and run-, its when they buy or -they rally when things appear doom, and they pullback or short-, whenever they want, so the small investor get toasted, no matter how much info you have in hand.

  • Report this Comment On June 10, 2012, at 9:18 AM, michaelmar wrote:

    This fiasco has secondary implications for FBs future gave the company as well as Wall Street a black eye...MZ & friends makes 12B+ while they many of the people that bought and lost on FB, or even just read the stories about it, will just walk away from ever using FB again (that is if they ever did in the first place). The number of people that now "hate" FB has just grown substantially. It may never recover it's "cool" image that was it's primary asset IMO.

  • Report this Comment On June 12, 2012, at 11:30 AM, jdp245 wrote:

    I completely disagree with the author here. One look at this company pre-IPO and it was a no-brainer to me that I didn't want to touch it with a 60 foot pole. Why? That they currently have no way to monetize mobile traffic (which is increasing exponentially) and that management has no experience running a public company. You could read numerous articles pre-IPO that made these same points (I believe even on this site), and as I recall, many people questioned the initial valuation and not many people were surprised to see this IPO go into the toilet because the initial valuation was just too high.

    The reason most of these individual investors got burned is because they didn't do anything to educate themselves about the prospects of FB and the risks of investing in a company with little or no track record. Like lemmings, they went out and bought up shares all the way up to $45. Honestly, I don't think these people can blame anybody but themselves for the losses they incurred. But what happens when these people blindly choose a stock based on emotion rather than good investing diligence and common sense? "Blame Wall Street! We've been ripped off again!" Honestly, that is just a load of BS. They will all blame anybody but themselves.

    The article here seems confused about a couple critical points. It tries to make it sound like an investment bank's retail analysts and its underwriters all work together and share information, so an analysts report MUST have inside information that was learned by the underwriters in preparing the IPO. But that is not actually how it works. There are restrictions on the sharing of information between the IB side of the business and the research side. And these restrictions are not just lip service. There separate computer and email systems, computerized checks to make sure that people don't email others on the wrong side of the wall, and even physical barriers (with keycard restricted entry) between the IB and research sides of the business. Analysts provide their own independent analysis. Frankly, the analyst reports were just reacting to the same information that made all of us question the sanity of the valuation of FB. If I could figure it out from the data that was publicly available, I am sure those who are smarter than me and do this for a living could figure it out. And there is nothing illegal or dishonest about a research analyst sharing their work product with their clients and not sharing it with the rest of the street. This is no different from TMF restricting its premium analysis and services for its paying customers.

    Another key misconception is that these investment banks were out there selling IPO shares to individual investors. Hogwash. Your average Joe is buying on the secondary market. (I doubt he has a $10M portfolio at Morgan Stanley that could qualify him for a taste of some IPO shares.) Those shares were all sold to institutional investors.

    It is sad to me that people were duped into buying such a terrible investment, but honestly they were fooling themselves (or maybe just fools). To go around blaming the underwriters based on a flawed or ignorant view of how an IPO works is irresponsible and fails to place the responsibility for investment decisions where it belongs: on the investor.

  • Report this Comment On December 28, 2012, at 9:39 AM, zgriner wrote:

    The Internet bubble proved to me that I didn't know much about investing. And I didn't want to spend a lot of time worrying about my investments. So, I am either in index funds, or dividend-paying stocks.

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