I’ve been working in my office with CNBC on in the background. I just can’t resist the Facebook IPO disaster – it’s like watching a train wreck. Let’s just count the concatenation of errors, stupidity, ethical lapses, insider trading, class action lawsuits, and maybe even criminal fraud. So let’s see what has come out so far:
1) The largest IPO on NASDAQ was delayed for undisclosed reasons.
2) When it opened the NASDAQ computer systems could not keep up with the transactions.
3) Many traders cancelled orders in the milliseconds prior to the opening.
4) Many buyers did not know what or how much they had bought or at what price and some still don’t.
5) Many buyers with double secret probation stock couldn’t sell and lost money they didn’t even know was committed.
6) On the first day the stock peaked above 42 and then quickly dropped to the offering price. Volatility still continues.
7) A few days later it was revealed that high velocity traders made significant profit on the NASDAQ system delays (some in milliseconds) while real investors lost big.
8) Also a few days later it was revealed that a Morgan Stanley analyst revised revenue projections sharply downward just a few minutes before the IPO but only revealed this to big customers of Morgan Stanley.
9) As of yesterday, Facebook had lost $40 billion.
10) There are now Congressional, SEC, and state Attorney General investigations, class action lawsuits, and growing doubt about Facebook.
11) All of this occurred in an environment of greater regulation than we have ever seen in this country.
ARE THERE NO ADULTS ON WALL STREET?
DID NOBODY THINK ABOUT CONSEQUENCES, THE APPEARANCE OF FRAUD, AND INSIDER TRADING?
WILL THE GOVERNMENT USE THIS (AND JP Morgan/Chase’s trading stupidity) TO REGULATE EVEN MORE?
So, how do we fix this? I have a couple of ideas but would appreciate yours too:
1) Short term. Allow any buyer who acquired at the IPO to sell at breakeven. Morgan Stanley, the other underwriters, and NASDAQ to take the hit. The class action suite may make this happen.
2) Do something to destroy the advantage of high velocity traders by only allowing combined trades every second or so and insist that the information get to everyone at the same time. (Would this do it?)
3) Replace complex, compliance-heavy, and confusing regulation with a short list of simple, clear laws, which re-establish the stock market as a place to invest, not gamble (not that I believe Congress can actually act adult enough to do this).
Thoughts?
