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Galvin fines Morgan Stanley $5m for actions in Facebook IPO

Massachusetts Secretary of State William F. Galvin said Monday that his office has fined the investment banking firm Morgan Stanley & Co. $5 million for its “improper influence” over research analysts before the initial public stock offering of the social network Facebook Inc.

According to Galvin, Morgan Stanley’s actions as the lead underwriter of Facebook’s IPO violated an agreement Morgan Stanley signed with the Commonwealth in 2003.

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Galvin’s office posted a consent order on its website. According to the consent order, Morgan Stanley neither admitted nor denied the violations set forth in Galvin’s complaint. Galvin said that Morgan Stanley has agreed to pay the fine.

In a statement, Morgan Stanley said: “We are pleased to have reached a settlement with Secretary Galvin and the Massachusetts Securities Division and to have put this matter behind us. Morgan Stanley is committed to robust compliance with both the letter and the spirit of all applicable regulations and laws.”

In a press release, Galvin suggested that Facebook originally projected an optimistic outlook for its revenue forecast. That forecast was later revised downward. Galvin said that Morgan Stanley shared Facebook’s downwardly revised revenue estimates with institutional investors, but not with so-called “Main Street” investors.

“The improper influence of Morgan Stanley’s investment bankers over research analysts is yet another example of an unlevel playing field, where Main Street investors were put at a significant disadvantage to Wall Street,” Galvin said.

Facebook’s IPO in May was one of the most widely watched of the year. It closed its first day of trading barely above its initial offering price of $38. In mid-day trading Monday, Facebook shares were hovering at about $26.55.

Chris Reidy can be reached at
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