02 September 2014

Facebook IPO fallout continues as investor sues Nasdaq OMX

23 May 2012  |  4939 views  |  0 Nasdaq

Nasdaq OMX is being sued by an investor over its botched handling of the Facebook IPO, which saw trading delayed and failed order cancellations.

In a complaint filed in a Manhattan federal court yesterday, Phillip Goldberg is seeking class-action status on behalf of all investors who lost money because Nasdaq "badly mishandled" the IPO.

Trading in Facebook shares on the Nasdaq was delayed for 30-minutes on Saturday, with Nasdaq chief Robert Greifeld later admitting that unforeseen technology problems at the Exchange had contributed to the snarl-up. "This was not our finest hour," Greifeld told the Wall Street Journal.

According to Bloomberg, Goldberg tried to order and cancel requests for Facebook shares through an online Charles Schwab account but, says the complaint: "Orders placed by investors seeking to purchase Facebook shares during the first trading day often took hours to execute. In the meantime, the investors seeking to purchase those shares had no idea if their trades had executed, and, accordingly, had no idea if they owned Facebook shares at all."

The main problem, according to Greifeld, was a malfunction in the trading-system's design for processing order cancellations. Extensive testing Nasdaq had performed ahead of the deal failed to unearth the problem.

Trade database developer Nanex has laid the blame for the delayed opening at the door of high-frequency traders and "excessive" order cancellations, adding "ironic enough, it was mostly HFTs that benefited later when Nasdaq quotes stopped coming from the Securties Information Processor (SIP) which transmits quotes for everyone who doesn't get the premium direct feeds".

The SEC has vowed to examine the events of Friday and another civil lawsuit has been filed against Facebook, Mark Zuckerberg, IPO underwriters Morgan Stanley and others alleging violations of securities laws. Darryl Lazar has filed a proposed class-action lawsuit in a California state court, alleging that Facebook's registration and prospectus were materially false.

Meanwhile, shares in the social networking giant have sunk over the last two days, hitting $31 a share by yesterday's close, down more than 18% on the IPO price of $38.

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