NASDAQ hit with record $10 million fine in Facebook IPO | June 5, 2013 | Almanac | Almanac Online |


News - June 5, 2013

NASDAQ hit with record $10 million fine in Facebook IPO

• Securities and Exchange Commission cites stock exchange for numerous violations.

by Sandy Brundage

The aftermath of Facebook's glitchy transition to a public company continues to unfold a year after the social media company, headquartered in Menlo Park, held its initial public stock offering (IPO).

The Securities and Exchange Commission slapped NASDAQ with a record $10 million fine on May 29 for "securities laws violations resulting from its poor systems and decision-making" during the IPO.

According to the SEC, the violations included the stock exchange deciding against delaying the trade of Facebook stock despite not completely fixing a computer problem that was causing more than 30,000 trading orders to remain frozen for at least two hours instead of being carried out promptly. That in turn skewed the price and available volume of shares.

"This action against NASDAQ tells the tale of how poorly designed systems and hasty decision-making not only disrupted one of the largest IPOs in history, but produced serious and pervasive violations of fundamental rules governing our markets," said George Canellos, co-director of the SEC's enforcement division, in a press release.

A Facebook spokesperson said the company will not comment on the case.

In December, Morgan Stanley, one of the lead underwriters of the 2012 IPO, agreed to pay $5 million to settle the first regulatory action brought against Facebook financial backers who allegedly withheld information from public investors. The underwriter settled the case brought by the state of Massachusetts without denying or admitting any wrongdoing.

Multiple class action lawsuits resulted from the IPO. The suits allege that Facebook provided false and misleading statements in documents filed with the Securities and Exchange Commission and made available to the public prior to the stock offering.

In addition, according to the lawsuits, the company allegedly gave a private heads-up to lead underwriters, including Morgan Stanley and Goldman Sachs, who then decreased their revenue projections. The lawsuits allege that the underwriters told a handful of select investors about the change, but not the public.

Facebook stock was trading at around $24 on NASDAQ on May 31; it debuted last year at $42.05.


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