Lawyers descend to pick over carcass of Facebook’s troubled IPO

23 May 2012

Little did we think a week ago that Facebook’s IPO would be seen as a tawdry mess. Indeed we all thought the golden boy of social media sites would be a roaring success.

Instead Facebook’s share price is hovering around US$31, down from the high of US$45 Friday afternoon. Now the news is that lawyers representing peeved shareholders are about to issue lawsuits over a perceived last-minute fumbling by Facebook’s board over the issuance of shares.

You see, effectively 25pc extra shares were issued at the last minute.

In addition to this, analysts at Morgan Stanley and Goldman Sachs are alleged to have told clients they were reducing their earnings estimates for Facebook based on analysis that Facebook’s advertising sales aren’t keeping up with user expansion.

It is believed that institutions only told their largest investors about these concerns while smaller investors were left out in the cold.

A class action suit has been filed against Facebook and its early backers by investor Darryl Lazar, alleging they failed to be upfront about prospects for the business.

Prominent tech blogger Michael Arrington has suggested that Facebook’s CFO David Ebersman is being scapegoated, being thrown to the wolves, for the decision to increase the shares at the last moment. Arrington says he believes Ebersman did not make his decision in a vacuum and that members of the board including Mark Zuckerberg were involved in the decision.

Business Insider’s Henry Blodget wrote an interesting ‘behind the scenes’ account and said the ‘selective disclosure’ of the estimates cut was grossly unfair to investors who bought Facebook stock on the day of the IPO.

What has been one of the most-eagerly awaited IPOs in tech industry history appears to have been – to borrow a phrase from The Wall Street Journal – ‘fumbled.’

Social mystique lifted

Some commentators indeed have used the narrative of the subdued IPO to highlight their belief that social media’s veil of mystery has been removed.

MIT’s Technology Review opined that Facebook is just another ad-supported website that without an ‘earth-changing idea’ will collapse and take the internet with it.

How different the language is from a week ago, when Facebook was being likened to the most monumental invention in human history since the Guttenberg press.

But the beat of business in the tech industry will just go on. Facebook will go on. Its share price most likely will eventually grow. The endless cycle of new innovation will go on.

But talk of another golden age for tech IPOs will not.

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years