Nasdaq to Face More Legal Action After SEC Approved $62M in Facebook IPO Disaster

| by Sarah Fruchtnicht

After the U.S. Securities and Exchange Commission approved Nasdaq’s $62 million plan to compensate Facebook investors on Monday, there may be more legal action in the works.

The approval won’t stop the government or other parties from taking action against Nasdaq OMX Group Inc. for losses they suffered when Facebook’s 2012 initial public offering flopped.

The Facebook IPO launched on the NASDAQ exchange in May 2012, but instead of reaching for the sky, as expected, the share price immediately dropped below its $45 opening and stayed there. The debacle cost Mark Zuckerberg an estimated $8 billion.

Brokerages claimed they didn’t get confirmation that trades were going through at the same time share price was plunging.

The SEC-approved plan offers $62 million as compensation to repay brokerages. Nasdaq CEO Robert Greifeld originally submitted a figure of $40 million for SEC approval, but brokerages complained that was too low.

While law precludes exchanges from being held liable for IPO flops, the SEC is allowing Nasdaq to exceed a previously set ceiling on payments to help investors with their losses.

Calling the Nasdaq plan “inadequate and insufficient” Swiss bank UBS, which lost $357 million, wants more money back than the settlement can offer.

UBS criticized Nasdaq for “gross mishandling” and “substantial failures to perform its duties.”

Monday the bank claimed it will still seek arbitration for “the full extent of our losses.”

In a public statement, the SEC said it did not take any stance on whether Nasdaq broke any laws or violated regulations, leaving the matter open to more scrutiny and fines.

After the fiasco, esteemed brokerages like Knight Capital and Citadel lost an estimated $30 million each. Knight was subsequently forced to sell itself to rival firm Getco.

Global giant Citigroup suffered heavy losses and was later fined $2 million by the state of Massachusetts in October 2012 for violating state securities law by releasing confidential information about Facebook Inc., including the firm’s opinion about investment risk and estimated Facebook revenues. Citigroup did not dispute the charges and agreed to pay the fine.

(Boston Globe, LA Times)