Massachusetts Fines Morgan Stanley Its Lunch Money over Facebook IPO
Massachusetts regulators fined Morgan Stanley $5 million for helping Facebook inform certain investors and analysts that its revenue estimates were too high just before it’s May IPO. The ensuing post-IPO plummet of Facebook’s stock cost investors billions of dollars and gave unfair advantage to those who got the best information, the state claims.
Why Massachusetts? The state’s regulators have jurisdiction over the bank that underwrote the Facebook IPO because it does business here and it agreed to certain rules on interactions between bankers and financial analysts as part of a settlement in 2003, the Globe explains. Secretary of State William Galvin alleged that a Morgan Stanley banker wrote the script that Facebook’s treasurer used to inform certain analysts and investors that their revenue estimates were too high before the IPO.
Because the price of Facebook’s stock dropped dramatically after the IPO, there are several government investigations and lawsuits in its wake. Massachusetts is the first to stick Morgan Stanley with a fine, which Morgan Stanley will pay without admitting to the state’s claims. That’s cool, though most analysts seem to be emphasizing to reporters that $5 million is the equivalent of a the bank losing some spare change it left in its pocket at the laundromat or something. Erik Gordon, a professor at the University of Michigan’s business school tells Bloomberg that it’s “a little bit of lunch money,” which might discourage other attorneys general from thinking they’re going to have a strong case against the bank. Columbia Law School’s John Coffee tells the Boston Globe, “That’s not the bonus for two employees there.” TechCrunch calls it “a drop in the bucket financially” but adds that it’s “a huge ugly mark on the company’s reputation.” Plus, Coffee tells the Globe that the fine bolsters Massachusetts’ reputation as aggressive in enforcing securities law. Or, to take the cafeteria metaphor as far as it will go: Massachusetts is symbolically looking out for the little guy by taking the big guy’s lunch money without making the big guy admit he deserves it.