Morgan Stanley fined $5 mn over Facebook breach

Morgan Stanley's handling of Facebook Inc IPO, a deal that cost investors billions of dollars, breached a 10-year pledge that kept investment bankers from influencing analysts, say Massachusetts regulators, who fined the bank $5 million.

A senior Morgan Stanley banker wrote a script that the then treasurer of Facebook used to update research analysts on the outlook revenue of the company before the IPO.

Secretary of the commonwealth William Galvin pulled up Morgan Stanley for dishonesty, ethics violations and failing to supervise employees -- the first regulatory claims to come from the bank's handling of the deal.

Facebook's stock plunged following its start of trading in May (See: Facebook shares down nearly 18 per cent below IPO price) leading to government probes and over 40 lawsuits, with some investors claiming the social-network company failed to disclose revised forecasts before the IPO.

According to Erik Gordon, professor at the University of Michigan's Stephen M Ross School of Business, the small size of Morgan Stanley's fine relative to investors' losses showed other regulators might struggle to pin much blame on the bank.

He added, they paid a little bit of lunch money as a fine, they would not be disqualified, and they agreed once again to abide by a consent order they agreed to nine years ago. He added, coming from Massachusetts, where they could have gotten hit a lot harder, if anything, this was not encouraging to attorneys general.

In 2003, Wall Street banks including Morgan Stanley agreed on an overhaul of internal controls and fencing off businesses after regulators found some firms allowed investment bankers to influence analyst research.