Thursday, May 24, 2012

FB IPO - Scam of the Year?

FB Stock Chart: Reaching New Lows!
(c) EDGAROnline


Less than a week into the Facebook IPO, and there's already a class action stockholder suit against Mark Zuckerberg, Facebook, Morgan Stanley [the underwriter, and OMG, not that paragon of financial virtue -- Goldman Sachs!  Seems that MS and GS withheld vital information about projected profitability from the public -- but informed their best clients.

Joe, say it ain't so!

It looks like what we've been talking about all along: market manipulation, or should we call it fraud!  --

Nah; fraud would mean a criminal indictment, and that won't happen in this Administration, since Mark has a key to the Oval Office, and Goldman Sachs seems to be running the SEC, Treasury, and the Fed.

OMG!  It's getting so BIG!                       (c) Visual Photos

The MSM pumped this up trying to get investors to offer up their savings to to the FB god.

The biggest pumper seemed to be the Washington Post, perhaps because Donald Graham [WaPo's Chairman] sits on the Board of Directors of Facebook.

OMG!  I'm so happy, Don! Can I call you dad?      (c) Mashable
[Graham was listed as holding less than 1% -- which means he could own as many as 2 MILLION shares, worth as much as $75 MILLION  -- perhaps we'll see the WaPo hyping the stock again soon].

Most IPOs in recent times have fallen flat on their opening day; this one, having been disparaged by savvy investment brokers, had little in the way of legitimacy as a money-making enterprise -- in spite of Facebook's wholesale and unacceptable client data harvesting, plus its intrusive advertising schemes.

It's still not profitable, and its attempts so far to become profitable have been at the expense of the privacy of FB subscribers -- who have tightened their hold on private information regarding themselves and their families.

Those negatives didn't help the IPO.  But, here's how it worked

1)  MSM public hype about the coming IPO

2)  Early subscriptions for Wall Street [read Goldman Sachs, Morgan Stanley, etc.,] insiders

Ex-US Citizen Ed Saverin (c) dweam
3)  Lots and lots of really positive hype [e.g., Washington Post] to let us know what a spectacular success this IPO would be because FB is led by a Wunderkind Zuckerberg  -- who is tied to Obama and is smarter and richer than anyone in the universe, so we should adore him [and his co-founder, Ed Saverin, who just renounced his US citizenship as a tax-dodge].
4) Founder Zuckerberg got to ring the NASDAQ opening bell to draw attention to the IPO.

5)  Hedge traders waited for a soaring price [it got all the way to $45] so they could exercise their Sell orders and take a quick profit and run

6)  But, there were so many pending Sell orders that the NASDAQ had to cancel FB trades for nearly two  hours  [SEC was in full Nap Mode] and the NASDAQ later apologized and said it was "their" glitch [i.e., - they couldn't control the number of sellers all dumping their shares at once].

7)  Pre-Market opening price was pumped to $42.24

8)  Within minutes, share prices dropped by almost 20% to $38, then to $35.

9) Brokers [Goldman Sachs?] then artificially pumped in more "Buys" driving the price up to $41 temporarily and hoping for  a general surge, where it held for two hours before it plummeted again to $38.25 where it closed.  Later, it dropped to $30, but wobbled around with a fairly low volume. 
Recent reporting [29 May 2013] notes that NASDAQ explained away the 18 May 2012 IPO Debacle by claiming a computer "design flaw" causing 30,000 shares to be held in limbo for two hours rather than trading.

Oddly, NASDAQ itself claimed a $10.8 Million profit by "shorting" 3 MILLION shares of FB stock "in an unauthorized error account".  The SEC fined NASDAQ $10 Million; but we've seen no SEC actions against Goldman Sachs, or the other brokerages, or .... the Washington Post. 
If you had bought in after the opening bell, you would have immediately lost $4 a share.
[Price on 4 June 2013 was $23 a share -- a loss of $15 a share - or nearly 50%]

Wow! We cleaned out those suckers!    [Trading Places]
The Insider Traders were at Goldman Sachs, who, according to the SEC, sold more than 24 million shares at $37.58
[with a par value of $4 per share, would have netted about $792 million in profit]

We'd think the SEC would be all over this -- if Zuckerberg were not a White House pal -- and a major contributor to the Obama reelection campaign.

Looking at the nuts and bolts of this scam, we note that SEC records reflect: 

How did she know when to sell?                              (c) Zimbio
The SEC Registration:  The IPO

"Facebook, Inc. is offering        shares of its Class A common stock and the selling shareholders are offering       shares of Class A common stock.  We will not receive any proceeds from the sale of shares by the selling stockholders.  This is our initial public offering and no public market currently exists for our shares of Class A common stock.  We anticipate that the initial public offering price will be between $       and $         per share."       

The company created more than TWO BILLION shares, with a stated [notional] par value of about $4 per share, with an artificial opening price of $38 per share.  That created about $72 BILLION -- out of thin air. 

That's not quite the same as the Fed creating $14.5 TRILLION with their printing presses and shipping it to Europe a while back, but, Goldman Sachs seems to have the process down pretty well since they're plugged in to both the SEC, the US Treasury, and the FED.

On opening day, more than 580 Million shares were traded with an approximate value of $22 BILLION [current volume has been only around 60 million].  That's a lot of value for seemingly worthless paper.

Let's look at the insider selling on Friday:
Goldman Sachs: Listed direct sales of    19 Million shares at $37.58 [$ Million]
                             Listed "indirect" sales:  70 Million
                             Remaining shares:        66 Million
DST                      Listed Direct Sales:     132 Million [Value:  $5 BILLION]

How much?   (c) Disney

But, let's examine Zuckerberg's wealth.
It was based, pre-IPO, on the hyped value of the stock before it was offered.
And, there were over 2 BILLION shares created.

So, on paper, the company was worth more than $75 BILLION -- because, uhhh, Goldman Sachs said it was?  And then they sold that stock as if it actually had value?

Of course, the related question arises, why is GS rated as a bank, and why is it engaged in high risk stock ventures using depositors' funds -- guaranteed by the FDIC?

FB Futures?                 (c) shutterstock
Oh, yeah, this happened with Barney Franks' banking reform act, which made our financial system safer.
Will Facebook follow the same roller coaster value ride that Yahoo did?

Stay tuned -- but, don't invest just yet.