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Facebook investor sues Nasdaq

Class action lawsuit accuses Nasdaq of negligence over IPO delays

Financial trends and news by Steven Loeb
May 22, 2012 | Comments
Short URL: http://vator.tv/n/26ed

The Facebook IPO story just keeps getting more and more complicated, and more fascinating, by the day.

After Facebook’s less-than-overwhelming IPO last Friday, it came to light over the weekend that Nasdaq had experienced technical glitches before the stock went public, caused by a large number of cancellations. This, in turn, caused a delay in the opening of the stock and a backlog of order messages Nasdaq was not able to give investors for up to six hours.

Nasdaq officials admitted the problems had taken place and, despite assuring that they had not had any impact on the stock itself, offered to give $13 million of its own money back to investors, even though losses due to Nasdaq’s technical snafu were estimated to be more like $100 million, with roughly 30,000 trades affected.

Therefore, it is not surprising that investors didn't seem happy with the sum Nasdaq offered, even though Nasdaq is only actually allowed to give $3 million, according to SEC regulations, and was adding the additional $10 million from money it made off buying and selling Facebook shares. 

Well, it didn't take long for someone to try to get it back.

Maryland investor Phillip Goldberg filed a class action lawsuit against Nasdaq Tuesday, saying that the stock was “badly mishandled,” according to Bloomberg.

The complaint, filed today in Manhattan, claims negligence on Nasdaq’s part, as they failed to cancel orders and complete trades on time, causing investors to not know whether or not they owned the stock, and to acknowledge trades at prices after the stock had already gone down.

“Orders placed by investors seeking to purchase Facebook shares during the first trading day often took hours to execute,” Goldberg said in the complaint.

“In the meantime, the investors seeking to purchase those shares had no idea if their trades had executed, and, accordingly, had no idea if they owned Facebook shares at all.”

On Friday, Facebook’s IPO day, he attempted to order stock online. When he could not complete the transactions, he attempted to cancel, only to have the trades come up as “pending” instead.

Later in the day one of his cancelled orders went through, when the stock was more than $3 less than it had been when he first attempted to buy.

The suit does not specify damages.

Meanwhile, Morgan Stanley is now being accused of telling major clients that it was reducing its revenue forecast days before the IPO, which may have been responsible for that high number of cancellations that jammed Nasdaq’s system.

Both the Securities and Exchange Commission, as well as the Financial Industry Regulatory Authority, are looking into the situation.

Facebook raised $16 billion in its initial public offering, but only managed to end its first day at $38.23, 0.6% rise over its initial price. On Monday, it fell 11% to finish at $34.03, and in Tuesday trading, shares fell another 8.9% to $31. The price is now $7 below the $38 initial offer price.

Facebook was not available for comment.

(Image source: brajeshwar.com)


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