Tuesday, August 28, 2012

Facebook Inc (NASDAQ:FB)’s Botched IPO: SEC Reviews Rules

In the backdrop of the Facebook Inc (NASDAQ:FB) Initial Public Offering (IPO) drawing a lot of flak and even lawsuits from irate investors, the Securities and Exchange Commission (SEC) is planning to review rules related to company announcements in the period prior to the IPO. 

Several U.S. lawmakers are of the opinion that small investors of Facebook were kept in the dark about dismal earnings estimates and hence suffered losses.  Trading glitches on the NASDAQ further aggravated the problem.  The IPO price of the Facebook stock was $38 and the scrip is now trading less than half way below this price.

In her letter to Republican Congressman Darrell Issa, SEC Chairwoman Mary Schapiro wrote, “We should review our communications rules and the application of the quiet period in light of the changes in both the way the market functions and the changes in communications technology that have occurred since our last major reform in 2005.”

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This document has been obtained by Reuters. Issa had earlier written that such rules that hinder free flow of information put the public at a disadvantage. 

However, the banks associated with the IPO have said that they have complied with the law and followed standard procedure.  But, complaints persist that reports of earning estimates were revealed only to top investor clients. 

In the next few days, we will know if the SEC indeed takes steps to do away with rules that prevent company executives from making any announcements in the pre-IPO period.

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