Facebook; what went wrong?

In a matter of few days, the eight-year-old company we know and mostly love has shed more than $33 billion in value – several billion more than the market capitalization of Morgan Stanley the lead underwriter of Facebook’s IPO and slightly more than the market capitalization of Time Warner, one of the largest media companies in the world. To put it another way, close to 10% of GDP of Iran!

Fortunately most of the $33B loss was borne by large institutional investors; the minimum buy for the IPO was around $1,000,000.

Many of key executives of FB itself suffered huge dents to their net worth; Mark Zukerberg’s net worth was decreased by $6 billion for example.

A significant number of unbiased (on Wall Street? Please!) analysts place a value of $16-$18 on the stock.  Many ask how this initial public offering was sold for $38 a share to highly paid professionals who buy and sell securities for a living. 

There is probably no one complete reason.  There are probably many key factors that led to this.  But the underlying problem is institutionalized fraud and looking out for personal interest only attitudes on Wall Street.

One thing is for certain.  Many of the managers responsible for buying FB IPO will be fired soon if not already.  A large number of law suits will be filed against underwriters, Nasdaq, Facebook and Zukerberg himself.  It is only a function of time.

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