Morgan Stanley (MS) Fined Over Facebook (FB) IPO

Massachusetts regulators have fined Morgan Stanley & Co. LLC, a wholly-owned subsidiary of Morgan Stanley (NYSE:MS), $5 million in connection with charges over the Facebook, Inc. (NASDAQ:FB) IPO last summer.

The consent order, filed by the Securities Division of the Office of the Secretary of the Commonwealth of Massachusetts, can be found here. It follows an Offer of Settlement submitted by Morgan Stanley.

The basic, well-known story is that Morgan Stanley knew of Facebook revenue projections that were lower than those appearing in the Facebook prospectus. Morgan Stanley not only kept the lower numbers out of SEC filings, they discussed them with a select analysts and other investment bankers – giving them an unfair advantage over other investors, particularly the general public. The IPO turned into a debacle and the price of FB has never recovered.

The consent order (linked to above) provides specific details of the interactions between Facebook employees (specifically its Treasurer and CFO), various Morgan Stanley personnel and syndicate analysts.

The Massachusetts charges focused on Morgan Stanley’s efforts to improperly influence research analysts. The actions of a Morgan Stanley employee identified in the consent order only as “Senior Investment Banker” and Facebook’s Treasurer were of particular concern. The Senior Investment Banker helped the Treasurer rehearse her calls to analysts and apparently helped script her comments. Investment bankers are prohibited from talking to analysts (a prohibition which this coaching effectively circumvented) in an attempt to eliminate conflicts.

Morgan Stanley was not required to admit to the facts or violations of law detailed in the consent order, and was fined only $5 million. It also agreed to cease and desist from violations of the Massachusetts Uniform Securities Act and, interestingly, once again agree to cease and desist from violations of a 2003 consent order with the Massachusetts Securities Division. Apart from any reputational damage, this settlement is unlikely to have much impact on Morgan Stanley.

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