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SEC’s Facebook IPO probe: No wrongdoing so far
The Securities and Exchange Commission, which launched a review of Facebook Inc’s (FB) May 17 IPO after its stock price plummeted, hasn’t found any evidence that the company withheld material information from investors, a person familiar with the matter said.
The SEC, whose investigation is continuing, is still looking at other IPO-related issues, including whether retail investors were harmed by misleading information from brokers or selective disclosures to analysts by the company’s bankers regarding Facebook’s mobile applications, said the person, who asked not to be identified because the probe is confidential.
Any conclusion by the SEC that Facebook made adequate disclosures of risks prior to its IPO would bolster the company’s defense against civil lawsuits filed by retail customers damaged by the sudden drop in the company’s initial US$38 share price, which is about half that value now.
“The plaintiffs will say that analysts were downgrading Facebook before the IPO because people were making selective disclosures about mobile applications,” said John Coffee of Columbia University Law School. “You have to show there was a material fact not stated in a registration statement, but Facebook’s statement does say there was some problem with mobile apps. A change in analyst recommendations is not something you normally put in SEC disclosure statements.”
The firm had no immediate comment. SEC spokesman Kevin Callahan declined to comment as did Facebook. The SEC is conducting an “in-depth review of all the participants” in the IPO, SEC chairman Mary Schapiro said in an interview September 28 on Bloomberg Television.
The regulator’s initial focus in the probe was whether any material information was omitted from its prospectus by Facebook, whether it shared bad news only with a select group, and whether sales people misrepresented demand for the social network stock to lure small investors. (Bloomberg)
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