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Two US government panels are to investigate Facebook's high-profile stock offering amid claims that the bank handling the flotation may have provided only select clients with a negative assessment of the company.
The U.S. Senate Banking Committee is reviewing "issues raised in the news" regarding Facebook's botched initial public offering, a Democratic Senate Banking aide told Reuters.
The review is not considered a formal investigation at this point, but entails briefings among the committee staff and regulators, Facebook and other stakeholders.
The announcement by the committee comes on the heels of reports by Reuters that an analyst for lead underwriter Morgan Stanley cut his revenue forecasts for Facebook in the days before the offering. The IPO also suffered setbacks following a technology glitch on the Nasdaq exchange.
The aide did not provide details about what issues the committee planned to explore.
Facebook and banks including Morgan Stanley are being sued by shareholders who claim the defendants hid Facebook's weakened growth forecasts when shares went on sale for the first time last Friday.
U.S. regulators say Facebook's initial public offering should be reviewed, putting a spotlight on Morgan Stanley.
The financial services firm denied the accusation: "Morgan Stanley followed the same procedures for the Facebook offering that it follows for all IPOs. These procedures are in compliance with all applicable regulations. "
"Revised views [of growth forecasts] were taken into account in the pricing of the IPO," the company said in a statement.
Facebook's share price closed down $3.03 or 8.9% at $31 in New York today.
In its three days of trading, Facebook's stock has dropped 18.4% from its $38 issue price.
For the thousands of investors that bought at the IPO, that's bad enough, but one analysis of its earnings prospects suggests it could get a lot worse - more like $10 a share.
Setting aside the hype and the cultural phenomenon that is the online networking site, Facebook Inc would be fairly priced at $9.59, according to the smattering of Wall Street estimates analyzed and modeled by Thomson Reuters StarMine.
Shares in Facebook fell again at the open today as doubts about the company's valuation increased after Reuters reported that underwriters cut their revenue forecasts for the social networking site shortly before the IPO.
Facebook's shares hit a low of $31.73, 7.4% below Monday's close, and are now trading down 17.1% down from their $38 IPO price. The shares are down 30% from a high of $45 hit shortly after they started trading on Friday.
Facebook stock sank today in the first day of trading without the full support of the company's underwriters, leaving some investors down nearly 25% from where they were on Friday afternoon.
Shares fell $4.64 to $33.67 in the first minutes of trading. That represented a decline of more than 12% from Friday's close and about 24.4% from the intra-day high of $45 a share.
"There are real concerns about growth and advertisers' frequent lack of certainty how best to use Facebook, along with rising costs and ongoing acquisition risk," said Brian Wieser at Pivotal Research Group.
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Facebook and Morgan Stanley are being sued by shareholders who claim weakened growth forecasts were hidden ahead of shares being sold.
If Facebook can get around privacy issues to use advertising better and capitalise on markets like China and Russia, prices should recover.