Underwriters Blasted As Facebook Shares Sink Again

Investors also launched legal action over the IPO, with the state of Massachusetts subpoenaing lead underwriter Morgan Stanley over how it promoted the shares, and another disgruntled investor reportedly suing Nasdaq over trading glitches that caused losses.

On a day in which the overall market traded flat, Facebook shares lost another 8.6 percent Tuesday, closing at $31.12, leaving them 18.1 percent below the IPO price.

Some $17 billion in market capitalization was wiped from the company, which launched on the market at a spectacular $104 billion valuation last week.

The shares continued to fall in after-hours trade, falling to as low as $30.72, as analysts and investors concluded that the $16 billion, 421 million shares IPO was j
ust too big for the real demand and that major early institutional investors had not intended to hold on to them.

Underwriters had tried to prop up the trade at the $38 issue price on Friday, but gave up on Monday and Tuesday as selling became too heavy.

“They issued too many shares and the market wasn’t ready to absorb them, that’s all there is to it. The market isn’t ready to absorb it,” said Michael Pachter of Wedbush Securities.

The sell-off sparked more finger pointing and anger from those who had expected the price to zoom to massive gains such as the immediate doubling of career-oriented social network LinkedIn’s IPO price last year.

“Investors are searching for someone to blame and there are plenty of suspects,” said Paul Ausick at 24/7Wall St.

Analysts blamed Morgan Stanley for allowing Facebook last week to increase the price and the offering size to 421 million shares, raising $16 billion.

“The underwriters placed the stocks with people who really were not that committed to owning it, and so a lot of them sold it,” said Pachter.