Morgan Stanley Fined over Facebook Research


New York, NY – Earlier this week, Morgan Stanley, the lead underwriter for Facebook’s initial public offering, was fined $5 million by the state of Massachusetts to settle charges that its investment bankers improperly influenced its research analysts when the Internet company went public.

William F. Galvin, Massachusetts’ top securities regulator, charged that Morgan Stanley improperly influenced the IPO process by helping Facebook selectively disclose sensitive financial information to large institutional investors, creating what Galvin called “an unlevel playing field” between Wall Street and Main Street where ordinary investors were disadvantaged.

The consent order alleges that a senior Morgan Stanley investment banker wrote a script for Facebook’s treasurer on how to share negative information about the company with stock analysts.  While the consent order did not name the Morgan Stanley banker involved, various news articles have suggested it was Michael Grimes, a well-known technology banker with Morgan Stanley.

Shortly before Facebook’s IPO, analysts at several banks lowered their growth estimates for the firm after Facebook issued an amended prospectus, revealing a potential slowdown in revenue.  According to the consent order, Facebook’s treasurer then made private calls to a number of analysts who cover the company.  During these calls, Facebook’s treasurer allegedly provided additional information not available in the prospectus, including quantitative financial information regarding Facebook’s second-quarter 2012 projections.

The complaint indicated that Mr. Grimes was personally involved in Facebook’s decision to file the new prospectus and to have their treasurer contact analysts directly.

Galvin said, “Morgan Stanley’s senior investment banker did everything but make the phone calls himself.  He not only rehearsed with Facebook’s treasurer who placed the calls to the research analysts, but he also drafted the majority of the script Facebook’s treasurer utilized when calling the research analysts.”

These Wall Street analysts then passed along this information to their institutional customers.  Retail clients, however, did not receive this information.

Grimes testified that Morgan Stanley pushed for Facebook to file an amended prospectus to avoid the appearance that the company was sharing information with a select group of clients rather than broadly with all investors.

Galvin explained the case by saying, “The broader message here is we are going to use any means possible to enforce the strict code in place about giving out information.  We want to get the message across that if Wall Street wants to get confidence back they can’t disadvantage Main Street.”



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  1. Interesting… Turn the clock back about 10/12 years and replace “Grimes” with “Grubman” or “Blodget” and you will feel that you are in a time machine in some sort of parallel universe. The beat just continues to go on. Bankers “write” a script for a Research Analyst, Analyst touts the Company, IPO comes off and the Individual Investor jumps in as the proverbial “stupid money”, gets burned as the stock drops and everyone scratches their heads “how did this happen”??

    Regulators get involved, find the “leaks”, slap on the wrist for the IPO Underwriter(s), and we probably start the cycle all over again in the near future.

    Nothing really ever changes does it?

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