Facebook’s Social Networking IPO Frenzy – The rise and fall…who’s on top?

Morgan Stanley, Goldman Sachs and Facebook founder Mark Zuckerberg (along with their respective insiders) are among the few guaranteed winners from the recent Facebook IPO. Regardless of the path this stock eventually takes, they will all come away as winners, financially that is. As far as their reputation goes though…I suspect we will be seeing a lot of back peddling in the weeks and months to come.

The lead underwriter for the Facebook IPO, Morgan Stanley, has been accused of withholding pertinent information to the public regarding a negative financial forecast for the Social Networking Giant. The insiders, on the other hand (including top executives at Facebook), were well aware of the prediction. Morgan Stanley’s failure to disclose this important information to potential investors has resulted in a slew of recent lawsuits.

The initial offering price of $38.00 per share for Facebook stock was set by the Bankers. Detractors claim that these bankers were aware that the stock was overvalued. Some go as far as claiming those closely connected to the deal intended to “pump and dump” their shares of the stock. This strategy involves using various, often illegal, tactics to intentionally drive a stock’s share price up with the intention of selling their stake for a profit. This tactic often leaves unsuspecting investors with a big loss on their hands.

Other investors claim that the NASDAQ stock exchange, which suffered an electronic glitch during the first few hours of trading, was on the supposed stock manipulation scheme. This glitch left trading open to only Institutional Investors, Bankers and Insiders. Everyday investors had no way to sell their shares as the price plunged. By the time the glitch was over, the Facebook shares had already risen to $45.00/share and fallen below the initial offering price of $38.00/share.

This story is probably far from over. Facebook has continued to leak information on new products emerging in the not so distant future. These include a new Facebook phone, code name “BUFFY” (competing against, yes…you guessed it, Apple & Google). Additionally, the Social Networking Giant has proposed to remove the age requirement for all users on their website (currently, the age is restricted to 13 or older). The introduction of these new products will help the company continue to grow and expand into other markets, as social networking is not going anywhere.

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