Spitzer reforms fail to prevent IPO squabbles
WHEN former New York prosecutor Eliot Spitzer led his assault on Wall Street investment banks in the wake of the dot com crash, his brief was to separate analysts from the bankers selling a deal like Facebook.
Whereas pre crash, analysts used to join a company’s management during a share sale roadshow and get subsumed into the whole process, these days those aligned with the sponsoring banks are required to keep their distance and are not even allowed to publish research.
The rules brought in by Spitzer were designed to prevent analysts from bigging up clients’ shares to investors mainly for the purpose of helping their counterparts in the corporate finance department to sell the deal.
On the increasingly problematic flotation of Facebook, it is the negative view of lead bank Morgan Stanley’s analyst in the wake of a regulatory filing from the company that is causing some investors’ blood to boil. The analyst’s negative views were conveyed orally because they aren’t able to be published these days during the float process, yet this has led to claims that some investors have been favoured over others.
One lawsuit filed yesterday claims that Morgan Stanley “selectively disclosed to certain preferred investors” its view that Facebook’s forecasts were being revised downwards.
Morgan Stanley says the new information was already “in the market” but unless Facebook shares recover, the bank will face a testing few days, especially since it increased its price range ahead of the float.