Morgan Stanley CEO defends Facebook IPO conduct

By Brett Philbin

NEW YORK -(MarketWatch)- Morgan Stanley MS -4.03% Chairman and Chief Executive James Gorman defended the securities firm's role in Facebook Inc.'s FB -2.25% tumultuous initial public offering, telling employees internally that the firm worked "100% within the rules" and calling the steep decline in Facebook's stock "disappointing." 

Gorman, in a weekly strategy meeting Tuesday, which was later webcast to employees, said "speculation of nefarious activity" surrounding the social networking company's IPO is untrue. Contrary to some reports, he said, he wasn't "aware of any dissent" among the underwriting firms regarding Facebook's IPO price of $38 a share.

A Morgan Stanley spokeswoman confirmed the comments made by Gorman.

Since the May 18 IPO, Facebook shares have plunged more than 25% to $28.23. Additionally, on the day of its market debut, trading glitches by the Nasdaq OMX Group Inc.'s NDAQ -1.85% Nasdaq Stock Market, postponed the start of trading in Facebook by 30 minutes. Once trading began, many investors were unable to confirm their trades.

Gorman said the malfunctions caused "unprecedented confusion and disarray" in the opening hours of trading in Facebook. 

At the meeting, Gorman supported top bankers and equity capital markets executives who worked closely on the offering, including Michael Grimes, co-head of global technology banking at Morgan Stanley, as well as Daniel Simkowitz, chairman of the firm's global capital markets business.

In the discussion, Gorman went so far as to recount a phone call he received from Facebook's chief operating officer, Sheryl Sandberg, last Friday evening. Gorman said Sandberg praised the company and offered Morgan Stanley a professional reference for its work on the deal.

Gorman confirmed that Morgan Stanley has received calls from regulators on the so-called information-sharing process over what retail and institutional shareholders were told about the company's financials ahead of the offering. 

Morgan Stanley and fellow underwriters Goldman Sachs Group Inc. GS -3.32% and J.P. Morgan Chase & Co. JPM -1.99% are facing criticism over their roles in the Facebook offering. Investors have filed a civil lawsuit in Manhattan federal court alleging the company and its underwriters failed to properly disclose changes to analysts' financial forecasts while the deal was being pitched to investors. Critics say the revised figures were only passed along verbally to certain large institutional investors and not relayed to all, a common industry practice.

Massachusetts's securities regulator subpoenaed Morgan Stanley in connection with the discussions between its analyst and certain institutional investors. Morgan Stanley said last week it followed the same procedures for the offering that it follows for all IPOs.

--Liz Moyer contributed to this article

Article from: http://www.marketwatch.com/story/morgan-stanley-ceo-defends-facebook-ipo-conduct-2012-05-30