Morgan Stanley banker withheld Facebook info, Mass. claims

Company agrees to pay $5M to settle the charge; 'clear violation'

Dec 17, 2012 @ 3:37 pm

By Dan Jamieson

Morgan Stanley has agreed to pay a $5 million fine to the state of Massachusetts over its role in the Facebook initial public offering.

The consent order alleges violation of state laws, and failure to supervise analysts under the 2003 global research analyst settlement.

The company did not admit to any wrongdoing in the matter.

Massachusetts regulators claimed that an unnamed senior investment banker at Morgan Stanley helped Facebook officials update analysts about lower revenue estimates in private calls on May 9, 2012 — information that was allegedly not given to all investors.

The steps taken by the investment banker to provide analysts in the research syndicate “with specific quantitative information not disclosed [in a May 9 Securities and Exchange Commission filing] was a clear violation of the Global Research Analyst Settlement that Morgan Stanley signed with Massachusetts,” said William Galvin, secretary of the Commonwealth of Massachusetts, in a statement.

The state claims the investment banker drafted a script used by Facebook's treasurer in making calls to analysts on May 9, minutes after filing the update with the SEC.

The script said that revenues for the second quarter would be on “the lower end of our 1.1 to 1.2 [billion dollar] range” and “over the next six to nine months could be 3% to 3.5% off the 2012 $5 billion target,” according to the consent order.

But those specific targets were not contained in the SEC filing, the order said.

In a statement, Morgan Stanley spokeswoman Mary Claire Delaney said the firm was pleased to settle the matter and was "committed to robust compliance with both the letter and the spirit of all applicable regulations and laws."

Despite the revenue downgrades, the price and quantity of Facebook's IPO were subsequently increased. The company went public on May 18 at $45 per share, but immediately sank to around $38 a share, eventually falling below $18 by early September. The stock trades around $27 currently.

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