Who is responsible – Facebook Share?
I can make an educated guess as to who Sorkin’s unmentioned sources were for his piece, because they’re the same types of sources I used to talk to regularly when I covered West Coast tech M&A for Bloomberg News in the late 1990s.
They are quite likely the same investment bankers whom Facebook hired to sell the IPO, and who now are blaming their own client, because as the company’s underwriters, those same bankers did what Facebook paid them to do.
No one person can change the valuation of a public company, so let’s not overestimate Ebersman’s 11th-hour decision to increase both the price and the number of IPO shares Facebook (NASDAQ:FB) sold. Make no mistake, Ebersman damaged his company and his own reputation with investors by deciding, at the last minute, to enlarge the IPO by an outrageous amount.
But who then carried out the assignment to make it larger, Santa Claus? Was it the Easter bunny in all those pinstriped suits, making last-minute calls to brokers and fund managers, unloading every last Facebook IPO share? I don’t think so.
The $100 billion in Facebook shares were sold to professional money managers by the brokerage arms of investment banks, just as surely as brokers and traders then sold them to retail investors.
Regular readers of this column know I warned investors to stay away from the Facebook IPO for more than a year, unequivocally so, because you should never buy anything that insiders are selling.
Among those many columns was one that pointed out, before the IPO, that the company’s ad-revenue growth rate was decelerating at a rate that was very alarming for a growth company in technology.
The reason any company files for an initial public offering of stock is to raise the maximum amount possible for its balance sheet. A public corporation has no duty other than to disclose as much of its financial information as required by securities law, and to do it fairly.
The raising of capital that funds companies is a ruthless business, and no one executes it better than investment bankers. No human beings, outside the world of sports, are more competitive.
In the case of Facebook, they sold the IPO and sold it and sold it until every share was bought. Now they want investors to forget their role, so they can sell the next IPO, and so they feed this nonsense to Sorkin.
Here’s my guess as to why he published it, based on my several years of off-the-record discussions with investment bankers: Those same bankers tend to be more helpful with anonymous tips or confirmation of breaking deals if, in turn, they get an occasional puff piece that either massages their egos or furthers their business interests.
What Ebersman did
You can make a strong case that Ebersman practiced selective disclosure when he told the underwriting banks, and perhaps also their clients, about the company’s reduced revenue-growth expectations due to increased mobile usage of Facebook.
Judging by the number of class-action securities lawsuits that have been filed against the social network, lawyers will make that case in court.
Yet don’t forget one of the most ironic and bizarre loopholes in any piece of securities-related rule or legislation ever: Regulation FD, which requires fair and broad disclosure of material information, doesn’t apply to companies that have filed an S-1!
That means even if Ebersman did give a heads-up to bankers (and then to their clients) about Facebook’s revenue trajectory, he broke no securities regulation.
Again, anyone who looked at Facebook’s six quarters before the IPO could see that trajectory.
The problem with Facebook’s initial public offering lies with the process itself, as pioneering investment banker William Hambrecht said back in May. Read part 1: Facebook IPO a “missed opportunity” and then part 2: IPO process is a bust, Hambrecht says.
Sorkin has the right to choose what he puts in a column. But readers who are licking their wounds from Facebook losses and therefore have a sympathetic ear may want to step away from a piece of rhetoric that drives a stake through Ebersman, even as it gives Wall Street bankers a pass.
For those with underwater Facebook shares, direct your anger at the brokers and fund managers who put your money into the social network, or sold you IPO shares directly, and at the bankers who sold them every last one.
Let’s all try to remember that no one held a gun to anyone’s head, forcing them to buy Facebook shares. – Market Watch