Morgan Stanley Allegedly Used This Weird Trick To Dodge Rules On Facebook IPO

Business Insider

Morgan Stanley used a really strange method for allegedly trying to skirt the SEC's rules when it was handling the Facebook IPO.

The bank is accused of providing revenue estimates to stock analysts that were not disclosed in Facebook's S-1 IPO papers, according to Bloomberg. Wall Street allegedly got a different set of numbers than the general public, in other words, and that's against the rules.

The allegations are old news, of course, except for Morgan Stanley executive Michael Grimes' explanation of how he tried to insulate himself from any potential rule-breaking.

According to a consent order signed by Morgan Stanley, in May 2012 Facebook came to believe that its Q2 revenue would be lower than previously estimated in its IPO statements. (The problem was its mobile ad revenue performance, which was a new business for Facebook at the time.)

Grimes is accused of writing a script that Facebook's former treasurer then read over the phone to a select group of analysts, apprising them of the new revenue estimates. The pair were working out of a hotel in Philadelphia.

Grimes allegedly thought that he could separate himself from the process if he couldn't hear the script being read. So he went to a different hotel room and sat on the floor, out of earshot, according to the order:

Needless, to say, the consent order -- coupled with a $5 million settlement -- appears to indicate that the SEC is not impressed by a firewall that consists of sitting on the floor of a different hotel room.



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