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Last Friday’s much-awaited Facebook IPO got off to a suspiciously rocky start, and some Washington officials want to find out why.
Politicians on Capitol Hill want to know if the banks that underwrote the IPO lowered their growth forecasts for Facebook’s revenue and kept this information from retail investors, but told other, large investors, about this new forecast, in violation of securities law. Lawmakers are also wondering about the sources of the technical problems that encumbered Facebook’s first day of trading.
Senator Tim Johnson is the chairman of the Senate Banking Committee. He commented that his staff is now launching ““bipartisan staff briefings with Facebook, regulators and other stakeholders.”
“I have instructed my staff to conduct due diligence regarding issues raised in the news about Facebook’s IPO,” Johnson said.
Johnson added that he will not make a decision about holding a hearing until he is in possession of more information.
The House of Representatives is also concerned about any improprieties connected with the Facebook IPO. The House Financial Services Committee is collecting information and hearing about the issues in briefings. One spokeswoman said: “While no hearings specifically focused on this IPO are planned at this time, the committee will have hearings over the coming weeks where this topic is likely to be raised.”
An independent organization which oversees the activities of securities firms, the Financial Industry Regulatory Authority would only say that there is a possibility that it will be necessary to review the situation if in the end the accusations about Morgan Stanley’s conduct and involvement turns out to be true.
“If true, the allegations are a matter of regulatory concern to FINRA and the SEC,” said Rick Ketchum, chairman and CEO of FINRA.
Democratic representative of California Maxine Waters said the IPO should be examined by lawmakers because there is a suggestion that retail investors were not treated fairly. Waters is also concerned that after the passage of the JOBS Act, which included an IPO clause which some house members felt was weak, strict oversight is crucial.
“I remain concerned with the IPO portions of the act, particularly as they relate to the erosion of the firewall between analysts and underwriters at investment banks, which I think will undermine the basic integrity of IPO-related research,” she said.
Ohio Senator Sherrod Brown agrees with Waters.
“The SEC must fully investigate and take appropriate action if it discovers any violations. The conduct in this highly publicized IPO only reinforces that the Senate was mistaken in voting to remove oversight from approximately 98 percent of all IPOs — for companies making less than $1 billion per year,” said Brown.