Morgan Stanley fined over Facebook IPO violations

Dec 18 2012, 10:57 IST
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 Morgan Stanley, the lead underwriter for Facebook Inc's initial public offering (IPO), will pay a $5 million fine.  (Reuters) Morgan Stanley, the lead underwriter for Facebook Inc's initial public offering (IPO), will pay a $5 million fine. (Reuters)
SummaryMorgan Stanley fined for violating investment research laws.

Morgan Stanley, the lead underwriter for Facebook Inc's initial public offering (IPO), will pay a $5 million fine to Massachusetts for violating securities laws governing how investment research can be distributed.

Massachusetts' top securities regulator, William Galvin, charged on Monday that a top Morgan Stanley banker had improperly coached Facebook on how to disclose sensitive financial information selectively, perpetuating what he calls "an unlevel playing field" between Wall Street and Main Street.

Morgan Stanley has faced criticism since Facebook went public in May for revealing revised earnings and revenue forecasts to select clients before the media company's $16 billion initial public offering.

This is the first time a case stemming from Morgan Stanley's handling of the Facebook offering has been settled.

Facebook had privately told Wall Street research analysts about softer forecasts because of less robust mobile revenues.

A top Morgan Stanley banker coached Facebook executives on how to get the message out, Galvin said.

A Morgan Stanley spokeswoman said on Monday the company is "pleased to have reached a settlement" and that it is "committed to robust compliance with both the letter and the spirit of all applicable regulations and laws.

" The company neither admitted nor denied any wrongdoing.

Galvin, who has been aggressive in policing how research is distributed on Wall Street ever since investment banks reached a global settlement in 2003, said the bank violated that settlement.

He fined Citigroup $2 million over similar charges in late October.

"The conduct at Morgan Stanley was more egregious," he said in an interview explaining the amount of the fine.

"With it we will get their attention and begin to take steps in restoring some confidence for retail investors to invest.

" Galvin also said that his months-long investigation into the Facebook IPO is far from over and that he continues to review the other banks involved.

Goldman Sachs and JP Morgan also acted as underwriters.

The underwriting fee for all underwriters was reported to be $176 million at the time, or 1.

1 percent of the proceeds.

As lead underwriter, Morgan Stanley took in $68 million in fees from the IPO, according to a Thomson Reuters estimate.

Massachusetts did not name the Morgan Stanley banker in its documents but personal information detailed in the matter suggest it is Michael Grimes, a top technology banker who was instrumental in the Facebook IPO.

The report says the unnamed banker joined Morgan Stanley in 1995 and became a managing director in 1998, dates that correlate with Grimes' career at

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