Wednesday, May 23, 2012
Disclaimer - the Cranky Old Man worked for 40 years on Wall Street as a low level operations manager slub. He has a degree in economics from Lafayette College where he graduated with a C- average. If any of this post makes sense it is only because I bull shit very well.
Facebook, Mark Zuckerberg, Banks Sued Over IPO
Investors are suing over what they claim is information withheld from all but the absolute biggest customers of brokerage firms before the IPO of Facebook.
Facebook stock was recently offered at $38/share to preferred brokerage firm investors. Traditionally when a new issue is offered, brokerage firms get a specific number of shares to offer to their customers. Generally these shares are offered to the customers based on the revenue these customers bring to the firm and overall interest in the new issue. Many new issues, particularly issues like Facebook which are much anticipated and hyped are very difficult to purchase at the IPO price.
Very often when these highly anticipated new Initial Public Offerings (IPO’s) open for trading on the exchange they sell at a price well above the offering price. Because of this, offerings to preferred customers at the IPO price are treated as almost free money that the brokerage firms offer their larger customers. It is not unusual for customers to buy stock at the IPO price, ($38) for Facebook, and sell it on the opening at a price $5, $10, or more above their IPO price.
A buyer at the IPO price who sells at the opening often turns a cool 20 or 30 percent profit (over 100% profit is not unusual). They then brag at the next cocktail party how they made X-thousands of dollars because they are preferred big shot customers.
Likewise many speculators who do not get the IPO price anticipate the run up of these highly anticipated issues and buy at the opening price expecting (most of the time) to sell later in the day at an even higher price because demand is so high regardless of what the financials would suggest the price should be.
In the case of Facebook, the IPO was priced too high. Professionals recognized this and sold, not bought in the face of hysteria.
The preferred brokerage customers, expecting to collect their usual instant profit were shocked that they actually lost money when Facebook stock sold down below the IPO price.
Now they are looking for loopholes and suing Facebook, Zuckerberg and the banks because they lost money.
Did brokerage customers even more important to the banks then YOU make money while YOU lost because they had information YOU did not? Maybe…Probably... Boo FUCKING Hoo…welcome to the club.
Listen you freaking crybabies for once you LOST!
You have been winning for so long on these transactions that you see them as your right to get in early and make a bundle while the little guy does not have the same opportunity. Wow, it turns out these IPO’s are not a sure thing. Investing can be a gamble.
You lost…so now you sue?
The market did not react the way it usually does. Sorry.
Cry me a river.