Almost a year after Facebook’s IPO, that happened in May 2012, the consequences of its debacle are yet to be assessed. Among the reasons for the collapse in the value of the social network’s shares there were technical problems with the Nasdaq platform. Yesterday, the Securities and Exchange Commission (SEC) – the authority which oversees the American Stock Exchange – announced that it approved a $62 million plan to compensate the investors affected by those problems.
This plan was coldly received because investors claimed to have lost a total of about $500 millions because of Nasdaq problems during the first days of trading. In particular, Swiss bank UBS complained losses for approximately $350 millions. Facebook’s founder Mark Zuckerberg (photo ©Guillaume Paumier) lost a lot of money too but in this case that’s due to the fact that he still owns part of the social network.
Facebook’s IPO was accompanied by a huge hype but started with a 30 minutes delay and other problems due to the overload of trading that caused delays in completing the various operations. In the stock market it’s vital that the operations are completed very quickly and data updates arrive constantly, on the contrary during the day of Facebook’s IPO start operators found themselves working in the dark.
The investors who decide to accept the compensation plan approved by the SEC won’t have the possibility to sue the Nasdaq. UBS has already announced that it will ask for an arbitration to obtain full compensation. It remains to be seen if other investors decide to go that route. The financial services company Citigroup Inc. opposed the Nasdaq’s compensation plan but for now it hasn’t released any official statements.
It’s inevitably a complex matter, in part because the SEC opened an investigation to see if a few big investors had received confidential information. In fact documents emerged showing that analysts at Morgan Stanley and perhaps even Goldman Sachs and JP Morgan had revised in negative thei estimates about Facebook and the source of thei information is not yet clear.
The SEC hasn’t yet announced the results of that investigation but it’s clear that at least part of the Facebook’s IPO debacle could be due to reasons other than Nasdaq’s technical problems. It’s important that the story of the alleged confidential information is clarified because it will affect any legal action by investors.
The fact that after ten months this matter is still so open shows how complicated it is. Only when the SEC has established what really happened during Facebook’s IPO it will be possible to try to understand when and how this story will end.