Facebook's $104bn stock market flotation descended into anger and recrimination last night, as shares in the social network slumped further in value and regulators investigated whether important information was kept hidden from some investors.
The company's market value had fallen to $85bn by the end of trading yesterday, reducing founder Mark Zuckerberg's stake from $19.1bn to $15.6bn and creating huge losses for investors who bought in when the stock started trading last Friday.
The shares closed at $31 last night, down 9 per cent on its third day of trading. That fall comes on top of an 11 per cent fall on Monday.
Adding to the debacle, Nasdaq, the stock exchange which listed Facebook shares, was slapped with a class action lawsuit last night on behalf of investors whose trades were not properly processed because of a software glitch on Friday.
The company's bankers launched a massive share-buying operation on Friday that kept the shares from an embarrassing fall below their offer price of $38, but that firepower was quickly exhausted in the teeth of intense selling pressure from investors worried about Facebook's long-term prospects.
Those long-term concerns mounted yesterday when it was revealed that some of the Wall Street analysts closest to the company – those working for the banks that underwrote the flotation – slashed their estimates for Facebook's revenues just days before its public debut. In a little-noticed amendment to the company's share prospectus before the initial public offering (IPO), Facebook said that revenues were unlikely to keep pace with the growth in its user numbers, because many new users were coming to the social network via smartphones, whose screens have little space for it to sell adverts.
The potential financial implications of that disclosure were only revealed to professional investors with access to professional research that included forecasts for Facebook's future ad sales. Morgan Stanley, which was the chief underwriter of the flotation, slashed its forecasts, along with Goldman Sachs and JPMorgan Chase, according to a report from Reuters. Henry Blodget, the dot.com era technology analyst turned financial blogger, led the calls for an investigation into whether the moves breached tough rules banning selective disclosure of important information in the run-up to a float.
Mary Schapiro, the head of the Securities and Exchange Commission, Wall Street's regulator, said her agency would "need to look at" concerns surrounding the flotation, as did the Financial Industry Regulatory Authority.
Status update: Not so rich insiders who have taken a hit
Founders, early investors and top executives are among those who have seen the value of their stakes plunge since the flotation on Friday...
Facebook founder sold $1.1bn of shares (worth $19bn on Friday) in the flotation to pay his tax bill.
Mr Zuckerberg's co-founder left Facebook in 2008, but still controls 8.5 per cent of it.
Facebook took her from Google to be its chief operating officer and its liaison with Wall Street.
Napster founder and early investor played by Justin Timberlake in The Social Network.