Morgan Stanley (NYSE:MS) almost seems intent on tarnishing its reputation as a fair player this year. The bank, which oversaw Facebook’s (NASDAQ:FB) IPO in May, is facing its second massive fine for not playing nice in the stock market.
What did Morgan Stanley do?
Earlier this summer, Morgan Stanley was slammed for noncompetitive trading, and now it’s being slammed for taking advantage of Facebook’s initial public offering. The $5 billion IPO, for which Morgan Stanley was an underwriter, was a massive flop, as stocks dropped rapidly after release. While Facebook shares remained well below their IPO price for many months, Morgan Stanley walked away from the disastrous debut with a hefty profit.
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CHEAT SHEET Analysis: Would A-level management be getting slammed with $5 million fines for breaking the rules?
One of the core components of our CHEAT SHEET Investing Framework asks us to investigate whether A-Level managers are jockeying the horse. No matter how thoroughbred a horse, the jockey is critical to success.
A-level management wouldn’t break the rules and tarnish a companies reputation to steal a little profit, but Morgan Stanley may have gone and done just that, as it allegedly took advantage of its position as an underwriter to set the stock up to fall, and raked in profits for itself. The bank underwriter may even have warned some clients of problems at Facebook, while not warning others.
Morgan Stanley may still have made a profit from the whole fiasco, fee included — and Citigroup (NYSE:C) also making off with some gains and a fee from the deal — but price it will pay could be some serious damage to its reputation, especially if it consistently engages in questionable trading practices.
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