Morgan Stanley Coughs Up $5 Million in Facebook Settlement
The state's securities regulator said on Monday that the bank violated the 2003 Global Research Analyst settlement in its role underwriting Facebook's IPO. In the days leading up to the May 18 offering, Morgan Stanley analysts downgraded earnings outlook of Facebook in an internal research report as a result of alleged conversations with company management orchestrated by underwriters
In the wake of Facebook's poor post-IPO performance, the social network and its underwriters faced criticism of selective disclosure on upcoming earnings weakness.
The report questioned Facebook's execution on mobile devices-tied ad revenue, a weakness that pushed shares lower in the company's first two earnings reports as a public company. In a statement explaining the statement Galvin of Massachusetts said that the analyst had improperly communicated with underwriters of the offering.
On May 9 -- roughly a week prior to Facebook's IPO -- the social network indicated in a filing with the Securities and Exchange Commission its advertising revenue growth relative to total users was slowing as a result of mobile devices.
Recently, Facebook's seen its shares recover to just 30% below its $38 a share IPO price as mobile device-based revenue begins to trickle in.
"We are pleased to have reached a settlement with Secretary Galvin and the Massachusetts Securities Division and to have put this matter behind us," Mary Claire Delaney, a Morgan Stanley spokesperson 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."
Morgan Stanley neither admitted or denied the claims, in Monday's penalty.