And now comes some news about the Facebook (FB) IPO that
buyers deserve to be outraged about.
Reuters' Alistair Barr is reporting that Facebook's lead
underwriters, Morgan Stanley, JP Morgan, and Goldman Sachs all
cut their earnings forecasts for the company in the middle of the IPO roadshow.
This by itself is highly unusual (I've never seen it during
20 years in and around the tech IPO business). But, just as important, news of the estimate cut was passed
on only to a handful of big investor clients, not everyone else who was
considering an investment in Facebook. This is a huge problem, for one big reason:
Selective dissemination. Earnings forecasts are material
information, especially when they are prepared by analysts who have had
privileged access to company management. As lead underwriters on the IPO, these
analysts would have had much better information about the company than anyone
else. So the fact that these analysts suddenly all cut their earnings forecasts
at the same time, during the roadshow, and then this information was not passed
on to the broader public, is a huge problem.
Any investor considering an investment in Facebook would
consider an estimate cut from the underwriters' analysts "material
information."
Don’t stop now. Find
out more at http://finance.yahoo.com/blogs/daily-ticker/facebook-bankers-secretly-cut-facebook-revenue-estimates-middle-133648905.html
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