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Today's Top News1. Facebook disclosure controversy to explode
We discussed recently the news that Facebook's lead underwriter Morgan Stanley cut its earnings in the middle of the road show, which was quite unusual. I also noted that the highly relevant news was not widely distributed beyond a group of institutional clients. Certainly, the news did not trickle out to the public. As it turns out, other underwriters also cut their revenue forecasts, prompted perhaps by an amended regulatory filing by Facebook that suggests in vague terms that revenue perhaps wasn't going to be as robust as expected in the second quarter. It suggested as much by noting that customer acquisition was growing faster than revenues, rather elliptical to be sure. Beyond the fact that the news of the revenue-estimate downshifts was not aggressively distributed, there are other issues. No less than Henry Blodget, who ought to know, writes: "It seems highly unlikely to me that the vague language in the final IPO amendment would prompt all three underwriter analysts to immediately cut estimates without some sort of nod and wink from someone who knew how Facebook's second quarter was progressing. (To get this message from the language, you really have to read between the lines). But even if this is what happened, it is still unfair that news of the estimate cut wasn't disseminated quickly and clearly to everyone considering buying Facebook's IPO." He concludes that, "The bottom line is that, even if dissemination laws were followed to the letter (which frankly seems unlikely), the selective disclosure here was grossly unfair. The SEC needs to look into this." I think the SEC will take his suggestion. This looks really bad for the issuer and the underwriter. Reg FD-like rules might somehow be in play. You can bet the regulators will come calling. For more: Related articles:
Read more about: disclosure, underwriters
2. Kleiner Perkins rocked by sexual harassment charges
Few companies could boast of a reputation like Kleiner Perkins Caufield & Byers', whose brand exudes extreme technical and financial savvy and a nose for blockbuster companies. It's the very pinnacle of venture capital. All of this makes the gender discrimination and sexual harassment charges lobbed by Ellen Pao, an accomplished investment partner with the firm, explosive and surprising. She has gone public with her saga in the form of a lawsuit, which the company would have liked to settle privately. Her complaint alleges that she was pressured to have sex by two colleagues, and suffered retaliation when she declined. After she complained formally, she says the firm gave her a smaller take of carried interest, denied her a board startup seat and tried to force her to move to the firm's China office. This sordid saga reaches to the top, as Pao took her complaints directly to John Doerr, Ray Lane and Ted Schlein, all of whom refused to act, she alleges. In one conversation, Lane suggested she marry her alleged harasser. The 19-page complaint alleges the problems began in 2006, "when Pao, then a junior partner, rebuffed the sexual advances of fellow junior partner Ajit Nazre during a business trip to Germany. Nazre, who is no longer with the firm, responded with "offensive, obstructionist and difficult behavior" while continuing to pressure her to have sex, the suit says. Eventually, Pao 'succumbed' to his advances and had sex with Nazre on two or three occasions, according to the complaint. When Pao said she would no longer have a 'personal' relationship with him, Nazre engaged in retaliation against her by excluding her from business meetings, email discussions and refusing to share information with her, the suit alleges," as noted by the San Jose Mercury News. Nazre is no longer with the firm. The suit also says that the overall atmosphere at the office was hostile and that three administrative assistants were harassed. Kleiner Perkins will be forced into spin mode. These charges have to be taken seriously. In such cases, accused firms tend to go all out to discredit the accuser, painting him or her in the most unflattering light. Sadly, this could get ugly. For more: Read more about: Gender Discrimination, Sexual Harassment Charges 3. Nasdaq's Facebook woes multiply
Among the big losers in the Facebook IPO debacle, Nasdaq OMX ranks right up there with Morgan Stanley and the issuer itself. Nasdaq's woes are not soon going away. The more the company discusses the incident, the more it comes across as simply incompetent. The company has informed members, according to Reuters, that it essentially mis-diagnosed the problems that plagued the botched opening of trading. It put a solution in place that it thought would fix the problem. "Rather than solve the problem, the purported fix to the system instead led to a two-and-a-half-hour period in which many brokers were unable to see the results of their trades." For a company that prides itself on its technical prowess, this sort of ostensible incompetence on the biggest possible stage represents a huge setback. The media has been unrelenting. The last thing the company wants is to be portrayed as unable to deal with orders and cancelled orders. That said, at least this hasn't been painted as a high-frequency trading issue. Unsurprisingly, legal action has been taken. A Facebook investor has sued the exchange company, saying he tried to order and cancel requests for Facebook shares through his Charles Schwab account the morning after the May 17 IPO. The lawyers are seeking class action status. For more: Related articles:
Read more about: Nasdaq OMX, Facebook IPO 4. New rules coming for pre-paid debit cards
In the wake of Reg E changes, the Durbin Amendment and Dodd-Frank in general, banks started to stream into the pre-paid debit card market, largely because it had ostensibly escaped additional regulation. It was flying under the radar, but that has now changed. The nascent Consumer Financial Protection Bureau (CFPB) has issued a NOPR, seeking to apply portions of a Regulation E to pre-paid debit cards, which are exploding in popularity with end consumers. In particular, the bureau would like to require banks to reimburse customers for unauthorized transactions that occur when a prepaid debit card is lost or stolen. As of now, that ranks as the only proposed change, but banks no doubt fear that additional regulations are coming. Indeed, it's somewhat surprising that the agency chose to not pursue the issue of fees, which have long been highlighted by consumer advocates. Fees tend to be high with these cards, especially when it comes to cards that have been modestly funded. The maintenance fees, the activation fee, the reload fee and so forth can take a toll. At the same time, consumer advocates have been pressing for better disclosure that FDIC insurance does not cover these cards. In the end, this may only be the beginning of a broad regulatory effort. As of right now, it probably would not be politically wise to go after a profit center aggressively. Still, the industry would be wise to self-regulate a bit. Industry-wide standards would go a long ways toward staving off formal regulations. For more: Related articles: Read more about: Facebook IPO, Lead Underwriter 5. Facebook wanted reduced estimates
Until now, people assumed that the analysts for the top underwriters of the Facebook deal--a group that includes Morgan Stanley, Goldman Sachs and JPMorgan--abruptly reduced their revenue estimates for the issuer because of an amended regulatory filing. But as it turns out, that might not be the whole story. Reuters reports that in the middle of the road show, "the social networking giant advised analysts for underwriters to reduce revenue and earnings forecasts, according to people with direct knowledge of the matter. The advice came around May 9, the day the company published an amended prospectus that included a cautionary note about how Facebook's users were increasingly using mobile devices, which generate less advertising revenue for the company." There was no mistaking that Facebook wanted some action. One insider was quoted saying that, "Facebook backed off and said, 'Hey, get your models down.' " Another insider said, "Facebook changed the numbers -- they didn't forecast their business right and they changed their numbers and told analysts. The underwriters' analysts then all changed their numbers based on what management was telling them." Morgan Stanley says it did nothing untoward regarding these disclosures, but there are plenty of investigations underway. If management told the analysts to get their estimates down, it adds a new dimension to the controversy. It may be that no actual laws were broken. But we'll have to see what the regulators uncover. It seems logical that all stock analysts should be treated the same, whether they work for underwriting banks or not. If non-underwriter analysts weren't given the same insight and information from management as underwriter analysts, there might be a problem. For more: Related articles: Read more about: Facebook IPO Also Noted
SPOTLIGHT ON... Goldman Sachs banker to testify soon So who will be the first Goldman Sachs employee to testify? It will likely not be CEO Lloyd Blankfein or President Gary Cohn, though they may be called to the stand at some point. We're more likely to hear from Byron Trott, the ex-Goldman Sachs banker who helped broker the deal that called for Warren Buffet to make a sweetheart $5 billion investment in the company at height of the financial crisis. The prosecution holds that the particulars of the deal were illegally provided by Ragat Gupta to Raj Rajaratnam. Article Facebook News: Company News: Industry News: Regulatory News: And Finally…The world's richest woman. Article
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Thursday, May 24, 2012
| 05.24.12 | New rules coming for pre-paid debit cards
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