NEW YORK — Morgan Stanley, the lead investment bank in Facebook’s troubled initial public offering, will compensate retail investors who overpaid when they bought Facebook’s stock in Friday’s IPO, a source familiar with the matter said.
The person said the firm is reviewing orders its retail clients placed for Facebook stock, and will make price adjustments if the clients paid too much. The person spoke on condition of anonymity because they were not authorized to discuss the matter publicly.
The person did not say what amount constituted overpaying for Facebook’s stock.
The social network’s IPO was highly anticipated. But technical problems on the Nasdaq Stock Market delayed the stock’s open on Friday. The stock closed nearly flat on its first trading day at $38.23.
Morgan Stanley and Facebook face at least two lawsuits over the IPO. Both suits allege that analysts at the large underwriting investment banks cut their second-quarter and full-year forecasts for Facebook just before the IPO and told only a handful of clients. Morgan Stanley has declined to comment on the lawsuits. Facebook has called the lawsuits “without merit.”
On Thursday, Facebook’s stock closed up $1.03, or 3.2 percent, at $33.03. This gives the company a market value of $90.4 billion, down from $105 billion at the end of trading on Friday.
Facebook, a site used by 901 million people worldwide, increased the number of shares sold and the price range days before the IPO, raising $16 billion and valuing the company at $104.2 billion. The company allocated more than 25 percent of shares to retail investors, said two people familiar with the offering who asked not to be identified because the process was confidential. That means the value of stock bought by that group for $38 in the IPO has dropped by at least $630 million in total, based on the closing price of $32 Wednesday and assuming investors held onto the stock.
While asset managers and hedge funds got to buy the stock in private trading years before the IPO and investment banks made money in the offering, small-time investors had to wait until last week’s IPO for a piece of the action. The outcome: After Facebook and its underwriters misjudged demand in pricing the IPO and glitches on the Nasdaq hampered trading on the first day, the world’s largest social-network website lost 18 percent in three days.
Demand from retail buyers was higher than normal for Facebook, with personal investment website Sigfig.com seeing 10 times more orders than it had for other recent technology IPOs, said Terry Banet, chief investment officer for the site.
“Facebook wanted to get more retail involvement and they succeeded,” Banet said.
As the biggest IPO in history, Facebook’s market debut has turned into a quagmire of blame. Buyers of the stock sued the company, Nasdaq OMX Group Inc. and the underwriters, claiming they were misled. The U.S. Securities and Exchange Commission and the brokerage industry’s watchdog both said they may review the offering, and the scrutiny prompted Morgan Stanley, the lead underwriter, to defend its handling of the IPO.Barbara Ortutay of The Associated Press, Danielle Kucera and Douglas MacMillan of Bloomberg News contributed to this report.