For many investors, whether novice or experienced, the Facebook Inc. stock offering was an eye-opening lesson on the potential pitfalls of a hot IPO.
At the Boston College Investment Club, students started receiving hard-core pitches at the end of 2011 to get in on the social networking company’s initial public stock offering, through a fund. One broker called the group so many times that the members realized it was probably a bad idea.
Indeed, the broker’s firm, New York-based Felix Investments, is facing charges from federal regulators that it misled investors and overcharged on commissions. Felix did not return calls seeking comment.
Generally, the club’s members, who oversee a $308,000 slice of the college’s endowment, were split on whether to invest in Facebook. “A few of the kids were talking about it as a speculative play. But we buy things for the long term,’’ said Christopher R. Khan, vice president of the club and an economics major who will be a senior next year.
As the stock has slumped 16 percent since the much-hyped IPO, Khan and his cohorts are feeling pretty good about their decision. In the aftermath of the stock offering, investors have filed lawsuits against Facebook executives as well as Morgan Stanley, alleging that the Wall Street firm told only some large investors that Facebook’s revenues were declining.
Investors also named other brokerage firms in the suit and sued the Nasdaq stock market as well.
“Facebook got the last laugh,” Khan said. “They made a killing for the insiders, and then the little guys kind of suffered.”
Facebook declined to comment. Its only public comment has been to say that investor lawsuits against the company were without merit. Shares closed Friday at $31.91, down from the $38 IPO price a week ago.
Numerous investors got caught up in the Nasdaq trading glitch that also clouded the first day of Facebook’s stock trading. Dan Leavitt, a retiree in Burlington, said he had put in an order for Facebook through his Fidelity Investments brokerage account, but was relieved when he got back a “canceled” order instead of a confirmation.
Later in the day, however, he learned that the trade had, in fact, gone through, but not at the $38 opening price he had requested. Instead, the shares were purchased at a slightly higher price, $38.08.
Brokers are required, by federal rules, to process customers’ “limit orders” at only the price they request or better. Leavitt said he has complained to Fidelity but the situation has not yet been resolved.
“I said I don’t want it, I don’t want to pay for it,’’ Leavitt said. He’s hoping for a full refund and does not want the stock. This was the first IPO he could recall investing in, although he said he owns other stocks.
Stephen Austin, a Fidelity spokesman, declined to comment on a particular customer situation but said the Boston firm is working with many customers who experienced delays in their Facebook orders on May 18, the first day of trading.
Austin said Fidelity is looking to “persuade Nasdaq to mitigate the impact to our customers” of the stock exchange’s software problems that day.
Khan, of Boston College, also experienced problems with a Facebook transaction in his personal account. While he was relieved to have canceled one order for the stock, another small order went through, in his E-Trade account.
It was only a couple of shares, he said, but the purchase went through at around $42, instead of at $38. He said he is just glad it was only a small amount of money on the line.
E-Trade did not respond to a request for comment.
Brian McCarthy was one of the luckier investors. A 37-year-old graphic designer from Holbrook, he decided to buy two shares with some extra money in his brokerage account, just in case Facebook becomes the next Apple or Google juggernaut stock. He waited until after the initial rush and bought his shares at $34, he said. So he’s only down a few bucks now.
“I thought maybe someday it’ll be worth $600 a share, and I can go on vacation,’’ McCarthy said.
He acknowledges that he’s too small an investor to have been in on the tip-offs that some institutional clients allegedly got from Wall Street brokers. But he’s OK with that.
Said McCarthy: “I considered it a lottery ticket more than anything.”