Skip to main content

The Globe and Mail

Morgan Stanley fined $5-million over Facebook research

A man walks into the Morgan Stanley offices in New York. Morgan Stanley was the lead underwriter for Facebook Inc.’s $16-billion (U.S.) initial public offering.

Shannon Stapleton/Reuters

Morgan Stanley, the lead underwriter for Facebook Inc.'s initial public offering, will pay a $5-million (U.S.) fine to Massachusetts to settle charges that its bankers improperly influenced its research analysts when the Internet company went public.

Massachusetts' top securities regulator, William Galvin, charged that Morgan Stanley improperly helped Facebook disclose sensitive financial information selectively, perpetuating what he calls "an unlevel playing field" between Wall Street and Main Street.

Morgan Stanley has been under criticism since the social media company went public in May for having revealed revised earnings and revenue forecasts to select clients on conference calls before the media company's $16-billion initial public offering. A Morgan Stanley spokeswoman did not immediately return a call seeking comment.

Story continues below advertisement

Mr. Galvin, who has been aggressive in policing how research is distributed on Wall Street ever since investment banks reached a global settlement in 2003, said the bank violated that settlement. He fined Citigroup Inc. $2-million over similar charges in late October.

Massachusetts says that a senior Morgan Stanley banker helped a Facebook executive release new information and then guided the executive on how to speak with Wall Street analysts about it. The banker, Mr. Galvin's office said, rehearsed with Facebook's treasurer and wrote the bulk of the script Facebook's treasurer used when calling the research analysts.

The banker "was not allowed to call research analysts himself, so he did everything he could to ensure research analysts received new revenue numbers which they then provided to institutional investors," Mr. Galvin said in a statement.

Retail investors were not given any similar information, Mr. Galvin said, saying this case illustrates how institutional investors often have an edge over retail investors.

Report an error
Comments

The Globe invites you to share your views. Please stay on topic and be respectful to everyone. For more information on our commenting policies and how our community-based moderation works, please read our Community Guidelines and our Terms and Conditions.

Please note that our commenting partner Civil Comments is closing down. As such we will be implementing a new commenting partner in the coming weeks. As of December 20th, 2017 we will be shutting down commenting on all article pages across our site while we do the maintenance and updates. We understand that commenting is important to our audience and hope to have a technical solution in place January 2018.

Discussion loading… ✨