Facebook, One Year Later: What Really Happened in the Biggest IPO Flop Ever

She also jotted down the expected reparation: $105,000 for compensatory damages, $500,000 for punitive damages, $1 million for "pain and suffering" and $315,000 in damages related to fraud. "I feel jilted and my confidence is now permanently stricken," she said in the complaint. FINRA will be on my side, she thought, as she told her story to the regulatory body.


On July 16, FINRA sent Swaminathan a letter: Neither Facebook nor NASDAQ was a member of their organization, and it lacked the authority to call them in. Still, she was willing to arbitrate with Morgan Stanley and Vanguard.

But in November, a response came from Morgan Stanley in the form of a lawsuit: Morgan Stanley & Co. LLC v. Swaminathan. The bank had essentially filed an injunction to stop the arbitration from happening, requesting that Swaminathan pay legal fees incurred if it is required to participate in arbitration. When Swaminathan read the court documents, she panicked. "They wanted to take what I had left," she cried.

Then she saw the headlines.

Reuters based a story on Morgan Stanley's complaint, entitled, "Morgan Stanley seeks to halt Facebook arbitration case." Gizmodo.com wrote, "A Sad Woman Lost Her Entire Life Savings in the Facebook IPO and Now Wants Her Money Back." Business Insider had "There Actually Is A Widow Who Says She Lost Her Life Savings In The Facebook IPO."

She was mortified. "Whatever happened to confidentiality?" she exclaimed. "FINRA had promised that my documents would stay private." Indeed, her complaint might have stayed private if it went unsettled (FINRA makes awards and judgments public on its website). But Morgan Stanley made her papers available to the press when it attached them to a countersuit filed through New York's public court system.

She eventually withdrew her claims against both the bank and Vanguard. "I just couldn't deal with the stress anymore," she said. "I guess the big guy always wins."


An American flag hangs in front of the JPMorgan Chase tower in midtown Manhattan. In early May, rivaling its height was another banner with a Facebook IPO logo. Business journalist Heidi Moore shared a photograph of the building's façade with her Twitter followers on May 4. Radio reporter Ben Bergman retweeted it with a comment: "In Facebook We Trust."

By Aug. 18, Facebook lost about $50 billion in value. But many big investors made huge profits betting against the company, and others avoided major losses by backing out of the IPO just in time. During the roadshow, Capital Group, a large mutual fund and one of Morgan Stanley's preferred clients, pulled out of the deal after initially showing interest, and many other funds followed suit, according to a research analyst who was in correspondence with investors. SAC Capital Advisors, Steven Cohen's $14 billion dollar hedge fund and another one of Morgan Stanley's prominent clients, took a sizeable short position in the stock, said a research analyst. Scott Sweet's multi-billion dollar hedge fund client flipped the stock at $42. His subsequent short made his firm its "largest profit of the year," Sweet said. There's "no way" a retail investor could have known about the lowered projections, unless he or she "had a friend at a multi-billion dollar institution," he added.

A few days after Facebook debuted, Massachusetts's regulator William Galvin issued a subpoena to Morgan Stanley as part of an investigation into research analysts communicating Facebook's revenue prospects to certain institutional investors. Seven months later, Galvin's office settled with Morgan Stanley for $5 million after charging its investment banking division with inappropriately influencing research analysts during Facebook's IPO roadshow -- essentially breaching the "Chinese Wall." When asked about the script he wrote for Facebook's vice president of finance, Grimes testified, "I don't remember if she had a script or not."

Facebook, Vanguard, and Morgan Stanley declined to comment on all the claims in this story.

Swaminathan held onto her shares and went to her birth city of Chennai, India. She's writing two books -- one about herbs and spices and another about New Jersey's public school system. She hasn't traded stocks in a while, but she checks Facebook's stock price every few days hoping that someday it will bounce back.

Saturday, May 18, marked the one-year anniversary of the IPO. Facebook's shares closed Friday at $26.25 -- exactly $15 below her purchase price.


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Khadeeja Safdar is writer based in New York. Her work has appeared in The Huffington Post, The Express Tribune magazine, and The Tampa Tribune.

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