updated 09:25 am EDT, Sat July 26, 2014
Investigation centered on technical issues, bank actions marring launch
As part of Facebook's quarterly financial disclosures, the social networking giant reported that the US Securities and Exchange Commission (SEC) has ended its investigation involving Facebook conduct surrounding the initial public offering in 2013. In its quarterly report, Facebook claims that the SEC ""notified us that it had terminated its inquiry and that no enforcement action had been recommended." Shareholder lawsuits against Facebook and affiliated banks are unaffected by the disclosure.
NASDAQ technical issues were partially blamed for the launch troubles, as traders faced uncertainty amid failed or delayed transfers. However, the situation on Monday had been viewed by some analysts as confirmation that Facebook and its banking partners, primarily Morgan Stanley, had overvalued the stock. Even before trading began, analysts pointed out that Facebook's price-to-earnings ratio, a common metric used to compare stock valuation to actual income, was significantly larger than that of other tech giants. Further adding to concerns, Facebook showed a drop in income for the first quarter of the year.
Morgan Stanley was found to be advising favored clients on reduced revenue estimates for Facebook, leading Wall Street insiders to avoid or drop shares. The lower estimates by Morgan Stanley were apparently made following a public filing about mobile advertising sales, of which institutional investors were warned of during a Facebook roadshow leading up to the offering.