US Congress To Review Facebook IPO

The US Congress has entered the investigation into the issues surrounding Facebook's listing, less than a week since the company's debut on the stock market.

Both houses of Congress - the Senate and the House of Representatives - said they will look into the matter. The company is also facing a lawsuit from investors and a probe by financial watchdogs.

Sean Oblack, a Senate Banking Committee spokesman, said its review will focus on "issues raised in the news" and will include briefings with "Facebook, regulators and other stakeholders."

The House Financial Services Committee said its staff is also receiving briefings
on the issue and "gathering information and facts".

"While no hearings specifically focused on this IPO are planned at this time, the Committee will have hearings over the coming weeks where this topic is likely to be raised," spokesperson Marisol Garibay said in a statement.

The move intensifies the scrutiny over Facebook's initial public offering (IPO).

Facebook has said it will defend itself "vigorously" against claims it hid weakened growth forecasts ahead of its $16bn (£10bn) IPO after a group of disgruntled shareholders filed a lawsuit against the company, its founder and several banks behind the flotation in a New York court.

The shareholders claim that during the IPO marketing process the defendants concealed "a severe and pronounced reduction" in Facebook revenue growth forecasts because of increased mobile device usage.

The case was filed in the US district court in Manhattan, according to a lawyer for the plaintiff.

The Facebook share price has suffered since Friday's $38 (£24) launch and it closed at $32 (£20.41) on Wednesday - a drop of more than 15% on the IPO - but rose steadily after markets opened on Thursday.

The legal action comes after regulators said they are investigating Morgan Stanley , the lead investment bank that handled the IPO last week.

A report emerged that claimed it selectively informed clients of an analyst's negative report about the company before the stock started trading.

Financial Industry Regulatory Authority boss Rick Ketchum, the self-policing body for the securities industry, said the question is "a matter of regulatory concern" for his organisation and the powerful Securities and Exchange Commission (SEC) watchdog.

The top securities regulator for Massachusetts, William Galvin, said he had also subpoenaed Morgan Stanley over the claim it only divulged details of the revenue cut estimates to some clients.

Morgan Stanley said that it "followed the same procedures for the Facebook offering that it follows for all IPOs," and that its procedures complied with regulations.

Questions about the role played by Morgan Stanley as lead underwriter have added to the confusion surrounding Facebook's IPO, which was one of the most hotly anticipated debut in years.

The IPO raised $16bn (£10bn) for the social networking company and valued it at $104bn (£66bn).

Nasdaq stock market boss Robert Greifeld acknowledged that "clearly we had mistakes within the Facebook listing".

The stock debut, originally set for 11am on May 18, was delayed by more than 30 minutes because of technical problems, with some brokerages still sorting out the aftermath on May 22.

But brokerage firm Needhams has issued a "buy" rating for the stock, with a $40 (£25.60) target price for the social networker.

According to Reuters, Morgan Stanley analyst Scott Devitt cut his estimate for Facebook's revenue this year to $4.85bn (£3.05bn) from more than $5bn earlier.

Further scrutiny has been levelled at the IPO after the Wall Street Journal said that Facebook's chief financial officer David Ebersman decided shortly before the stock debut to increase the shares on offer by 25%.

The newspaper claimed that underwriter Morgan Stanley had assured Mr Ebersman there was plenty of demand for the stock.

A spokesman for California-based Facebook told the AFP news agency: "We believe the lawsuit is without merit and will defend ourselves vigorously."