When it comes to IPOs, there is often little participation from retail investors. But of course, the Facebook (NASDAQ:FB) deal was different.
And yes, now we are seeing a flood of litigation because of the heavy losses on the transaction. Just look at the claim from Uma Swaminathan — a widow and schoolteacher from East Brunswick, N.J.
Back in May, she bought 6,200 shares of the Facebook IPO and completed the transaction through Vanguard Financial Group. Interestingly enough, she tried to put a stop on the order. But the trade went through.
To get recompense, Swaminathan has filed an arbitration claim with the Financial Industry Regulatory Authority and is seeking damages of $1.9 million. About $1 million is for “pain and suffering”!
In the complaint, Swaminathan alleges that the lead underwriter Morgan Stanley (NYSE:MS) misled her when it did not make public its downgrade of Facebook’s prospects. She says that only big-time clients got the details.
Even if this is true, Swaminathan will likely have a tough time with the case. First of all, Morgan Stanley was not her broker and as a result, is probably not subject to the arbitration requirement. Besides, before Facebook went public, the company issued a “free-writing prospectus” (FWP) that indicated weakness in the mobile business. Here at IPOPlaybook, we had lots of coverage on this finding.
To deal with the case, Morgan Stanley has filed its own complaint in federal court to remove itself. All in all, it seems like the firm has a good chance of avoiding exposure on this one.
Tom Taulli runs the InvestorPlace blog IPOPlaybook, a site dedicated to the hottest news and rumors about initial public offerings. He is also the author of “How to Create the Next Facebook.“ Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
A long-time follower of the IPO scene, back in 1999 Tom started one of the first sites in the space called WebIPO. It was a place where investors got research as well as access to deals for the dot-com boom. Tom also wrote the top-selling book, Investing in IPOs. In it, he covers all the aspects of analyzing an IPO, such as reading the prospectus, detecting the risk factors and understanding some of the arcane regulations. But don’t worry — if that process is too intimidating for you, thankfully Tom will do the legwork for you right here in the IPO Playbook blog.
Comments are currently unavailable. Please check back soon.