Facebook, Zuck, Investment Banks Face Investor Lawsuit Over Botched IPO
I could say it's been a roller coaster ride since last week's Facebook Initial Public Offering, but thus far it seems the cars are riding a downward rail. Investors have seen Facebook employees and founder Mark Zuckerberg pocket a whopping chunk of change for their social networking efforts, while those that sent their money Facebook's way feel like they're left holding a smelly bag, as billions of dollars are disappearing into thin air from their newly invested holdings.
A lawsuit, filed today on behalf of a variety of Facebook IPO investors, seeks damages, alleging the private sharing of damaging, inside information that the rest of us may not have been privy to prior to handing over our hard-earned dollars.
As of yesterday, Facebook's value has dropped a whopping $19 Billion. I've been watching over the last few days, and as you can see from the graph above, this Facebook Timeline brings no joy.
There are those who likely feel vindicated for having sent out initial warnings against investing in the social networking Goliath. When Facebook opened at $42/share last week, its PE (Price to Earnings Ratio) was 85 times over its 12-month projected earnings. Compare this to industry giant Google, whose stock portfolio trades at 13 times its earnings potential. Many institutional investors held back on the IPO for this and other reasons.
Some would say the signs were also there for the common investor, if they had only spent the time researching. But no amount of reading, no shoot-from-the-hip prognostication, could prepare investors like George Brady for the trap he fell into last Friday.
The Wall Street Journal regales the tale of Brady, a retired North Carolina recruiter, who considered ponying up $38,000 of his hard-earned savings, initially placing a pre-IPO order with Charles Schwab for 1,000 shares of Facebook stock. When he had second thoughts and tried to withdraw his order prior to the stock's debut (normally a simple transaction), Schwab's system allegedly denied his order withdrawal, locking him into a financial nightmare.
After six hours of trying to reach Schwab that Friday to find out whether or not he "owned this dog or not," Brady simply gave up. By Monday morning, Brady woke up to find that the still-plummeting stock had already eaten up 8% of his forced investment.
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