The fiasco surrounding the IPO of Facebook (FB) was a classic comedy of errors, with stock underwriters, exchange operators and the company's insiders denying everything and blaming everyone but themselves. But the real blame points to the Securities and Exchange Commission and its failure to enforce its very own rules.
Look no further than the Securities and Exchange Act of 1934, Section 9, which strictly prohibits all securities manipulation. It states in part: "It shall be unlawful for any person, directly or indirectly, by any means to create a false or misleading appearance of active trading in any security registered on a national securities exchange, or a false or misleading appearance with respect to the market for any such security."
Yet, on Facebook's very first day of trading, Morgan Stanley (MS) engaged in legalized market manipulation by artificially boosting Facebook's shares to make sure they wouldn't close below the $38 offer price. The Wall Street Journal even described Morgan Stanley as Facebook's "stabilization agent."
The other issue of whether Facebook violated Regulation FD by sharing non-public material information with a select group of analysts and investors, while simultaneously withholding this same information from public investors, is only icing on the cake.
