SAN FRANCISCO — Ryan Cefalu, who lives with his wife and two children in Baton Rouge, La., saw in Facebook Inc.’s much-anticipated initial public offering a chance to buffer his retirement fund. His expectations fizzled along with the stock within the first minutes of trading.
“It’s disheartening to know that things get over-hyped,” Cefalu, a 34-year-old data-systems manager who spent about $4,000 on the stock, said in an interview. “That’s about a 12th of my annual income — so a month’s salary. I’m trying to do an on-my-own retirement kind of thing.”
Facebook, a site used by 901 million people, allocated more than 25 percent of shares to retail investors, said two people familiar with the offering who asked not to be identified because the process was confidential. That means the value of stock bought by that group for $38 in the IPO has dropped by at least $630 million in total, based on the closing price of $32 yesterday and assuming investors held the stock.
While asset managers and hedge funds got to buy the stock in private trading years before the IPO, and investment banks made money in the offering, smaller investors had to wait until last week’s IPO for a piece of the action.
After Facebook and its underwriters misjudged demand in pricing the IPO and glitches on the Nasdaq hampered trading on the first day, the world’s largest social network website lost 18 percent in three days.
The stock rose $1.03 to $33.03 on the Nasdaq Stock Market Thursday.
The biggest technology IPO in history, turned into a quagmire of blame. Buyers of the stock sued the company, Nasdaq OMX Group, and the underwriters, asserting that they were misled.
The Securities and Exchange Commission and the brokerage industry’s watchdog both said they may review the offering. And Morgan Stanley, the lead underwriter, will compensate retail investors who overpaid when they bought Facebook’s stock in the IPO, according to a person familiar with the matter.
The person, who wasn’t authorized to discuss the matter, said the firm is reviewing orders its retail clients placed for Facebook stock, and will make price adjustments if the clients paid too much.
For Cefalu, whose children are ages 12 and 1, the first-day glitches meant more than a bad day of trading: They made him buy twice as many shares as he intended after an order he canceled went through hours later, he said.
With shares of Zynga Inc. slumping along with Facebook, Cefalu estimates he lost a combined $2,250 as a result of the Facebook debut debacle.
Michael McClafferty, a freshman finance major at Michigan State University, saw his “first big investment” turn into a $3,000 loss when he sold the shares at $35.
“I didn’t want to lose more,” McClafferty said. “I didn’t know what to do.”
The 19 year-old student estimates he spent $8,000 more than he wanted to while repeating orders that wouldn’t go through on the first day, and failing to cancel them because of the technical problems.
Boston-based Fidelity said it is working with other brokerage firms to “get Nasdaq to come to a resolution that addresses the concerns of our customers.”
Rob Madden, a spokesman for Nasdaq OMX, did not immediately respond to a request for comment. Larry Yu, a spokesman for Facebook, declined to comment.