In case a reminder was needed, the fallout from the Facebook IPO illustrates that Wall Street appears to be designed to serve the well-connected at the expense of ordinary people.
Ordinary investors may have lost as much as $630 million collectively from the plunge in Facebook's stock following its public debut, Bloomberg reports. These are the same people who used hundreds or even thousands of dollars of their prized savings to bet on the stock only to have its value drop to way below its opening price of $38 per share.
While these mom-and-pop investors were seeing their hard-earned cash disappear, Morgan Stanley and Facebook's other underwriters might have been making a handsome profit off that same stock plunge. CNNMoney cites an anonymous source who estimates that the underwriters may have made as much as $100 million in profits so far -- an estimate that also appeared in a recent Wall Street Journal story about Facebook's underwriters. The WSJ also attributed the figure to anonymous sources.
Taken together, all this coverage goes some way toward explaining the ire of so-called retail investors -- the ordinary, non-insider people who have bought Facebook stock since Friday -- towards Wall Street.
Three investors have filed a class action suit against Facebook, its directors and its underwriters, alleging that the company failed to disclose key information about its revenue forecasts to the public. Specifically, that analysts were anticipating a slowdown in Facebook's growth in the coming months, but that Facebook and its underwriters made this information known only to industry insiders.
As these allegations have gained momentum, state and federal regulators, including the Securities and Exchange Commission, are looking into Facebook and Morgan Stanley. The Senate Banking Committee and House Financial Services Committee have also begun preliminary inquiries into the IPO.
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