Morgan Stanley, the lead bank on Facebook Inc.’s initial public offering, was fined $5 million by Massachusetts over claims the firm gave research analysts information that wasn’t provided to all investors in the sale.
“While retail investors were left to interpret vague qualitative information” from a regulatory filing, analysts were given “specific numbers” to lower their revenue estimates, Secretary of the Commonwealth William Galvin said today in a statement announcing the settlement. Morgan Stanley engaged in dishonest and unethical practices and failed to supervise its employees, Galvin said.
A slump in Facebook’s stock after it began trading in May has fueled shareholder complaints, regulatory probes and more than 40 lawsuits, with some investors claiming the Menlo Park, California-based social-network company’s managers failed to disclose revised forecasts before the IPO. New York-based Morgan Stanley didn’t admit or deny Galvin’s claims in settling.
Just days before the offering, Facebook officials privately told securities-firm analysts to lower earnings and profit estimates -- largely on the dearth of revenue from mobile users. An unidentified senior investment banker at Morgan Stanley “orchestrated” the calls to analysts, according to Galvin’s statement.
The banker “was not allowed to call research analysts himself, so he did everything he could to ensure research analysts received new revenue numbers, which they then provided to institutional investors,” Galvin said in the statement. The incident “is yet another example of an unlevel playing field where Main Street investors were put at a significant disadvantage to Wall Street.”
A Facebook regulatory filing on May 9 warned investors that users were growing faster than advertising delivered to users. The warning was widely reported by the media.
While the consent order didn’t name the investment banker, it said he had been employed at Morgan Stanley since May 1995 and worked in the bank’s Menlo Park offices. Michael Grimes, the firm’s global co-head of technology investment banking who helped lead the IPO, joined Morgan Stanley in May 1995 and works in those offices, according to records with the Financial Industry Regulatory Authority.
Grimes and a spokesman for Galvin’s office didn’t immediately respond to messages seeking comment on the unidentified banker described in the complaint. Mary Claire Delaney, a spokeswoman for Morgan Stanley, declined to say whether Grimes is the banker.
“We are pleased to have reached a settlement with Secretary Galvin and the Massachusetts Securities Division and to have put this matter behind us,” Delaney said in an e-mailed statement. “Morgan Stanley is committed to robust compliance with both the letter and the spirit of all applicable regulations and laws.”
Ashley Zandy, a spokeswoman for Facebook, declined to comment on Morgan Stanley’s settlement.
The U.S. Securities and Exchange Commission also is looking at the IPO, a person familiar with the probe said in October.