Three of Wall Street biggest and best-known financial institutions handled the Facebook IPO, so why were people immediately suspicious when the stock soared and then promptly tanked? Easy answer: Because three of Wall Street biggest and best-known financial institutions handled the Facebook IPO.
Each of them -- Morgan Stanley, Goldman Sachs, and JPMorgan Chase -- has a history of exactly the kinds of unethical and/or illegal behavior that might, just might, explain what happened with Facebook.
Mark Gongloff offers a good overview of Mr. Zuckerberg's Wild Ride, in which a stock that was offered at an IPO price of $38 soared to $45 and then plunged to its current (as of this writing) price of $31. A lot of people lost money -- which means a lot of people made money, too.
Zuckerberg promptly sold his 30.2 million shares, netting a quick billion dollars and change. That tells you what he thinks of this investment.
Here are 10 reasons why it makes sense to be suspicious of the Facebook IPO, starting with the fact that any overview of the three institutions which handled it might best be described as "rounding up the usual suspects":
1. Morgan Stanley has a history -- and a culture -- of tricking their own clients into making lousy investments.
It was Morgan Stanley's brokers who, in one notorious account, loved to brag "I ripped his face off!" after convincing one of the firm's own clients to buy a stock that the firm knew was lousy. (See Frank Portnoy's account in Fiasco.)
CNBC reports that "Morgan Stanley may have spent billions of dollars to support the (Facebook) stock price by buying shares in the market." This kind of market manipulation is common. They do these things to create an artificial sense of momentum when the market is turning against an offering. Investors don't know they're doing it at the time, of course. In this case, Morgan Stanley could have spent a billion dollars or more manipulating the stock price.
Now Morgan Stanley's being investigated by the SEC and the Commonwealth of Massachusetts, after reports indicated that its analysts were withholding crucial (and negative) information about the stock offering and, at the same time, sharing it with their own favored clients. That's a no-no.
2. JPMorgan Chase has a long rap sheet. What's another bust?
JPMorgan Chase is currently in the public time-out box for its botched derivatives trades in London -- about which it appears to have deceived its own investors (when it failed to tell anyone that the new, improved "risk model" it rolled out was not being used to analyze this London unit.)
When CEO Jamie Dimon said that laws may have been violated in that case, was he expecting people to be surprised? JPM has a long history as a corporate lawbreaker during Dimon's tenure. It paid millions to settle a long list of violations that includes illegally cheating veterans coming home from Iraq -- or still risking their lives there. It gave up nearly three quarters of a billion dollars to settle charges of bribing public officials in Jefferson County, Alabama. (Jefferson County is bankrupt. JPM's executives are doing just fine.)
And JPMorgan Chase just gave up billions more to settle charges stemming from its rampant foreclosure fraud, which involve mass perjury and forgery conducted by a group of inexperienced youngsters that JPM employees called "the Burger King kids."
The JPM rap sheet's got a lot more offenses on it, but that should give you the general idea. Dimon loves to affect an air of respectability. But his outfit ain't the PTA, if you catch my drift.
3. Goldman Sachs is ... well, it's Goldman Sachs.