iBankCoin
18 years in Wall Street, left after finding out it was all horseshit. Founder/ Master and Commander: iBankCoin, finance news and commentary from the future.
Joined Nov 10, 2007
16,837 Blog Posts

The Facebook IPO: A National Disgrace

First the company was supposed to come public at $28; then they upped the price range to $34-38. That wasn’t enough for the insiders and greedy underwriters, who collected bountiful fees (1.1%) based on the size of the deal, so they sweetened the pot. Said pot wasn’t sweetened for the unknowing public, who listened to sweet melodies of Facebook’s web dominance by the propaganda outfit known to you as CNBC. The pot was saccharined for the direct benefit of selling insiders, who put an additional 25% more shares on the market, to be dumped at the ipo price of $38– valuing the company at $104 billion. Just a few weeks prior, the company was allegedly worth just $96 billion, according to lead underwriter Morgan Stanley.

What’s $8 billion between friends, no?

The sophists on the television paraded well known venture capitalists and stupid pundits onto the tube, who praised Facebook as the next Google. They only had pleasantries for Facebook, things to do with the social media giants 900 million userbase and how they haven’t even scratched the surface in a seemingly endless pool of online advertising dollars waiting to be had.

Facebook was the answer to the Greek crisis, market malaise, promised by all to usher in an new era of American excellence.

The “generosity” of the lead underwriter, Morgan Stanley, and the selling Facebook employees/venture capitalists, continued until the very night prior to going public. The $18.4 billion raised by the ipo would have record retail participation.

What does that mean?

That meant Joe Schmoe with $50k at E-trade was allocated shares. That meant the ipo was not exclusive to institutional clients, for some odd reason. Maybe they just wanted to help the little guy out?

Lo and behold, upwards of 25% of the Facebook ipo was allocated to the unwashed, brainwashed and sedated public, who believed every word of sweet hominy molasses spoken by the journalists at CNBC. The stock opened at $45 and was quickly “sold to you” by institutions. Every brokerage firm I know, who was given 1 million shares or more, sold every single share at or near the opening tick.

The stock plummeted within minutes, causing a ripple effect in the market, sending the shares of fellow social media stocks lower, in horrific, pinless hand grenade fashion. Investment company SVVC traded below cash, swooning more than 27% in a single session–all because they owned 600,000 shares of FB at $31.

The syndicate then scrambled to save face. They feverishly bid for the stock with millions of shares, also having to deal with unprecedented software glitches at Nasdaq, which caused trades to go unreported for hours–putting traders in the dark. If Facebook’s ipo price fell below $38 on its first day of trading, they would have been exposed for thrusting a great crime upon the America people, through the outrageous pricing of a hyper-marketed ipo onto an unsophisticated investor.

At $104 billion, Facebook traded more than 25x sales. In comparison, social networking company YELP, who is often ridiculed for being overvalued, trades at about 12x.

The rest is history. Today, the market opened and the syndicate could not control the purblind mobs of angry and beguiled retail investors, who were hitting the bid in an effort to salvage their investment, burned badly by the fucking investment banks–yet again. Within 15 minutes of trading this morning, Facebook was down $5 or 13%, staggering an already injured retail client base and lighting fire to an already scorched social media space.

In all of my years on Wall Street, I’ve seen plenty of bad deals. Usually at boutique deal shops, ipo’s would trade flat its first day and sustain that level for weeks, if not months, afterward, before dropping. Most honest brokers avoid those deals because there is no incentive to put client money into an ipo that will likely trade flat, unless of course said broker is only interested in a concession. But this Facebook ipo steals the cake. This deal was worse than any bucket shop deal I’ve ever seen. What makes it exponentially worse is the size of the scam and the money it literally stole from retail investors.

If this deal was priced at $28, with the original amount of shares, everyone would have made money. Retail would have been happy. The market would have gone higher and the social media sector would not have been ravaged to drill bits. Instead, we got more of the same from Wall Street: greedy fuckheads who pushed the envelop and LOST (again), not only tarnishing their reputation in the process, but damaging the repute of America worldwide–viewed as a bunch of fucking gunslinging piggish idiots who cant’t even celebrate the public offering of their most popular, lauded and successful American company with a fair deal.

One day those fuckers will get what they deserve. We all do.

NOTE: Insult to injury- Morgan is likely short 63 million shares of FB at $38.

http://www.youtube.com/watch?v=d9CQXMNko8Q

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77 comments

  1. sierra

    Well said Mr Fly.

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  2. Rhino

    pretty damn fucked up, Ivy League assholes who just throw all their clients monies in the fire.

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  3. redman59

    Nice insight, I always like to hear opinions by those that worked Wall Street or anywhere else and have better knowledge of what really goes on and can break down the facts on how retail gets screwed.

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  4. Flicker

    When they increased the size and then the price I thought they could be pushing the envelope a little to far. However, the hype was so strong I thought they might get a first day push. When Nasdaq blew up, that paniced traders and pushed the deal over the edge. I feel the deal was fucked up but if you were stupid enough to buy into this fat pig I do not feel your pain.

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  5. Dirk Diggler

    Spot on. This post should be published in the NYT and WSJ, at minimum.

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  6. Gravestonedoji
    Gravestonedoji

    Word.

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  7. flyaway18

    Right on the money.

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  8. dizzles

    The retail tards who I deal with are dually responsible. Leveraging their account 200% with no exit strategy deserves to be punished.

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  9. The Eye-Talian Stallion
    The Eye-Talian Stallion

    A busted IPO within one day. FB will never be regarded as a respectable company, ever.

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  10. James

    Disaster of epic proportions. Heads should roll at Morgan Stanley for this EPIC FAIL.

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  11. Steak

    The 8 billion is certainly significant, but when you consider that GS made a private placement ~2 years back, and to date had valued the company at ~60 billion… even $28 seems overpriced.

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  12. Deal

    Your post is a little disingenuous. Stocks can be undervalued; they can also be overvalued. No one held a gun to anyone’s head forcing them to buy FB on the new issue.

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    • The Fly

      Are you serious? Isn’t common knowledge that “hot ipos” spike their first day of trading? Didn’t YELP, LNKD, GRPN and ZNGA all spike their first day? Wasn’t FB marketed as the Godfather of social media; hence luring investors into a “win-win” proposition?

      Don’t be so naive.

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      • Deal

        Wow. You sound like a 99%’er…you feel entitled to be be given a free ride and easy money on an IPO gravy train.

        Shame on you.

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        • Elvis

          Deal you sound like a Koo-koooo fuck you.

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        • The Fly

          Deal

          Do you know who the fuck I am, or is this your first time visiting?

          I fucking drive rail spikes into the skulls of the 99%!

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          • The Fly

            The point is not that people lost money. Instead, the point is people lost money because assholes structured the deal wrong. This wasn’t an ordinary deal, mind you.

            THIS WAS THE FUCKING FACEBOOK, DAMN IT!!!

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          • Blind Read Ant

            btw: Peter Schiff is a Bo$$. 1 PERCENT.

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        • GoodJobHi5

          Deal, your comments suggest that it’s alright to condone clearly assholish behavior on the part of the underwriters toward retail investors. I can only conclude then, that you are an asshole yourself.

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  13. wilmer

    Zuckerberg is Satan.

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  14. silentmax

    damn that was a good read!!! this is businessinsider material hell this should be published by forbes fortune and GQ

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  15. the boost

    i was going to buy some FB glad i didnt

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  16. azulgrana

    exactly what i told the pelicans: if youre a retail guy, and lo and behold you find out your gonna get a fill on your $FB allocation, you should be concerned, not ‘thank you sir, may i have another’

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  17. chuck bennett

    He might be Satan, but he is not the devil.

    I miss the old days,when chuck bennett, Horn, Sultan and the rest of the boys would get an IPO and take that shit from 5 to 20 and have warrants at 10 cents that go to 3.00 a share. Mr. the Fly knows and remembers these days well.

    one day I will share with you a few stories.

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  18. Steve-o

    A great read. Thanks, Fly.

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  19. TeahouseOnTheTracks

    OEW Daily Recap: http://caldaro.wordpress.com/2012/05/21/monday-update-311/

    “The market opened slightly higher today, pulled back a bit in the opening half hour, then rallied to SPX 1316. This 24 point rally, from friday’s SPX 1292 low, is the best advance since the Minor wave C (1366-1292) decline began. And also, the best advance since the Intermediate wave C (1415-1292) decline began. This may be an early indication that the Major wave 4 downtrend has concluded.”

    “Should the market get into the SPX 1330?s the downtrend is likely over. Keep in mind, the last three times, (2009, 2010 and 2011), the market was this oversold, on a medium term basis, the SPX rallied 90+ points in less than 2 weeks.”

    GL to the shorts!

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  20. Brendan

    Your best post ever and I ain’t kiddin.. Hat tip me friend

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  21. Bullish

    Now that the local news stations are talking about the Facebook flop. These retail investors will likely sell tomorrow morning only to watch FB trade higher by end of day without them.

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  22. hitter

    I think there is some confusion here. The underwriters represent Facebook, not the buyers. They are supposed to get the compnay and the selling shareholders the HIGHEST price they can. When we saw stocks IPO at $20 and go to $40, I thought the underwriters left a lot of the compant’s $ on the table.

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    • The Fly

      Wrong.

      Do you think it is in the best interest of Facebook and its shareholders to have a deal done that ended up being an unmitigated disaster, with a shitload of bad press and angry shareholder base to boot?

      Clearly, you are not a business owner because you’d know that keeping shareholders happy is goal #1.

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      • arron zamensky
        arron zamensky

        Only true when the shareholders have voting rights. At FB and GOOG, they do not– a little slice of brilliance they worked into their deal. Zuck doesn’t give a rat’s ass about you or any other retail investor. His BoD is not beholden to them.

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        • MetalLeg

          A close second is having a brand that is pristine which Facebook was until this debacle shit all over the name.

          Facebook is now synonymous with “we’ll fuck you over to make a buck.”

          Their users and the IPO bag holders are not mutually exclusive.

          Damage was done and denying it doesn’t make it go away.

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          • decklap

            How many of FB’s 900 million subscribers have any idea what this fuss is all about, they get a lot more pissed off about FB changing its interface than they do how its underwriters priced its IPO. This is a non issue in the real world.

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      • hitter

        Fly,
        With all due (and yesterday’s call gets you beaucoup dues) respect, 80% of FB’s shareholders ARE happy indeed with the $38.

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  23. xxxHuggieBearxxx
    xxxHuggieBearxxx

    The real story takeaway here for peoples like us (i am being generous) is that no matter what happens, irrespective of the financial calamities and popped bubbles, people, the masses, are absolute fucking idiots. It doesn’t matter if The Great Dot Com Bubble happened only a decade ago, or if the banks all went bankrupt three years ago, there is an entirely new wave, or maybe even the same wave, of plentiful idiots populating our great piece of earth.

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  24. the boost

    buying something when you dont know the value of it would be considered a gamble ..taking the word of a reputable dealer that something is worth $X amt. your relying on an opinion..and if i know better not doing this for a living ,these guys or you guys know better also ..

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  25. beat

    Yet another tremendous learning opportunity to all traders. Thank you senor Fly for crafting such an informative post. This should open the eyes of those too lazy to understand how they are getting screwed. The market exists to smash retail traders/investors to bits whenever it gets a chance. Deals like this one are a perfect example. The hype/pumpers constantly pontificating on television do nothing but add to the ignorance of the uninformed investor. It really is sad but this is something that will continue as long as the markets exist. A sucker is born every day. No truer words have ever been spoken. (no hater)

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  26. The Fly

    How many of you had access to LNKD or YELP ipos, compared to FB?

    The answer is obvious.

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  27. stunned

    Mr. Fly is spot on. We get that fb CAN screw investors, we’re saying bad move; you say buyer beware, we say foolish, they could have had it all; instead, short term greed, long term failure; the unseemly side of American ambition, an international embarrassment, ill mannered and sick at least, fraud at most

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  28. the boost

    this will probably keep the price down on the next offering….for the record no access to ipos here

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  29. Dr Fly

    Just because you can get away stealing from the blind man doesn’t mean you should.

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    • the boost

      i made sure the blind could see i gave a 3 day notice and gave everyone the same opportunity as the all seeing ..archadamus sounded end of days

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      • the boost

        in fact i asked them not to get boosted ,told them how not to get boosted , and a ratio to lock it up ..the playing field was even ..i did all i could do ..cant make them buy -sell or trade….

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        • the boost

          they could have asked ..instead most pointed and laughed ..some threw unwarranted remarks…some had the audacity to agitate in my pew..and some made fun of my spelling ,but i remained just

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  30. This scam is rigged
    This scam is rigged

    A great play by play that can be gotten nowhere else that I know of.

    ot: a little clip about my broker
    http://www.youtube.com/watch?feature=player_embedded&v=_GS_pvhcI5c

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  31. turd trader

    if you couldn’t smell the stink when Zucker paid Instagram $1 billion, then you deserve to get ripped off. The Fly gotz the dope beats.

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  32. mary pat

    The snakes are just being snakes. You can’t get upset just because you witness them being snakes. Patience and healthy cynicism saves $. Everyone involved was greedy. Period. FB tarnished forever, Wagner fantastic!

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  33. fake amish

    the party only really starts after the weak and pathetic fuck off and go to bed. bullish omen this FB farce could be.

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  34. Yogi & Boo Boo
    Yogi & Boo Boo

    Great post Fly. Greed kills.

    The end of this story is still not written. Deal doesn’t realize he lives in a financial ecosystem. When the greedy sheep rancher brings his massive heards to the virgin plains that supported buffalo for millenia and strips the ground to the roots, a dust bowl results.

    Welcome to the dustbowl assholes.

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    • Driven

      Exactly. This is what all the “retail is stupid and had it coming” posters fail to comprehend.

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  35. 88888s Account
    88888s Account

    Boo Hoo – no stag

    The market shit it’s pants during the deal and the punters looking for a quick buck lost out.

    Man-up pussies

    Imagine the whingeing if the SP500 didnt tank during pricing and the evil bankers had left 15% of the seller’s money on the table and if retails was shut out

    If you thought you were getting a bargain you were a clown but should see no difference now – unless you think the business model has changed in the last 5 days

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  36. razorsedge

    r u allowing french spam on ur site?

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  37. mrkcbill

    Nice blog post Fly…. The connected made good money with their nano second investments.

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  38. Tarkus

    Perhaps this link is the best illustration what patrols Wall Street and their attitudes towards investors:

    http://www.youtube.com/watch?v=f_MG0ja2iD4

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  39. decklap

    Yeah… but look… if Joe Schmoe with $50K in his E-Trade account got suckered into this then something is going to get him sooner or later. That guy has to know he doesn’t have enough good information to buy on the offering and if he doesn’t have that much sense then Im not sure there is a lot we should or could do about it.

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    • noodleboy

      I agree with you. What better way to learn the lesson then in a situation where it couldn’t be more obvious and blatant and clear. If all the trader takes from it is “I hate facebook” then that trader should probably quit. These are jungle rules.

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    • The Equalizer

      Two bulls stood on a hill overlooking a herd of cows.

      The younger bull said to the older bull “Hey, let’s run down there and fuck one of them cows!”

      The older underwriter said to the younger underwriter, “No. Let’s walk down there, and fuck ’em all.”

      That’s normally how the joke ends.

      And then came the FB IPO, whereupon the younger underwriter yelled “LEEEEEEEROY JENKINS!” and fucked up the whole game. (At least he got chicken.)

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  40. Dr Fly

    You people just don’t get it. This was a crime, grand larceny. It was built to fail and thrusted upon retail because there wasn’t enough institutional demand.

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    • razorsedge

      i get it, the bs before and after, the mishandling, orders w/ no confermation. downgrades before the open???????

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  41. decklap

    I appreciate your perspective Fly but I think we get it fine… its called buyer beware. If you’re dumb enough to buy something you don’t understand then you aren’t our responsibility when it blows up on you and that holds whether you’re a Kraut bank buying worthless mortgage swaps or Joe Shmoe drooling over sparkly FB shares Cramer keeps talking about…. when someone drowns we don’t blame the water. Yes MS fucked this to heaven and back and their reputation will take the hit but its not their fault people are dumb, LOTS of people opted to sit this out because it didn’t look right and the market is self correcting this fiasco as we type so I shed no tears.

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  42. Anton

    Great post.

    Look for some unattributed paraphrasing of it in the mainstream financial rags and on cnbc, probably by spokesdwarf jj cramer.

    There will eventually be some “big” feature stories with bullshit titles like “Losing Facebook” about what happened with this ipo. Because it’s easier to do a postmortem than actual research and reporting in advance.

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  43. Yabollox

    Nah. People were crazy to get FB shares on their own. Steve Wozniak was on teevee saying, “Buy Facebook at any price” and that’s what the retailers wanted and what they did. My wife said I should buy it with no regard to valuation. It was hysteria, based on people’s love of using the product. A product that generates little cash relative to people’s use of it. CNBC knows what people want and they play to it. That’s their job.

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  44. Anton

    You miss the point of Fly’s post and my comment while also misunderstanding the first “job” of journalism. Even if it’s teevee journalism.

    Work on reading for comprehension.

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  45. Bobby Boucher

    As I wrote in another post on this subject; just wait ’til the 90-day and 180-day lockups expire. If you think there was a supply/demand imbalance on the ipo date then you ain’t seen nothin’ yet.

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  46. walktothecabin
    walktothecabin

    Fly,

    After reading your blog for over a year, I found the first typo ever, which appeared in this post. You are to be commended for your fine work with the English language. One typo (cant’t) can and will be excused.

    Dude

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  47. Brett S.

    so good. right on the fucking money. well done fly.

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