Considering investors have filed a class-action lawsuit against both Morgan Stanley and Facebook over the selective disclosure that occurred before the firm’s IPO, it is worth reading this great post by Josh Brown on his Reformed Broker blog about what kind of disclosure is legally required prior to an IPO. Morgan analysts allegedly cut earnings estimates for Facebook in the middle of its roadshow and only passed that information on to the firm’s most valuable customers.
“I believe it’s possible that Reg FD may not have been violated here because at the time of the disclosures Facebook was still a private company. Further, it appears that the exemption for companies engaged in a securities offering is even more protective of this kind of activity than many would have suspected…”
Josh then goes on to offer details from Reg FD. He ends with this:
“So what went on here, while obviously immoral and unethical if true, may not have been illegal. Besides that, there have only been about a dozen or so enforcement or administrative actions taken based on Reg FD violations over the last decade, and shareholders cannot sue based solely on a violation of the rule anyway.
“Wall Street 1, Muppets 0. Same as it ever was.”