Will the SEC Charge Facebook and Nasdaq?
Securities and Exchange Commission officials are reportedly trying to investigate whether market operator Nasdaq OMX Group (NASDAQ:NDAQ) put the public’s interest first during Facebook’s (NASDAQ:FB) initial public offering earlier this month.
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Facebook’s opening sale of shares on May 18 was marred by technical problems, with a delay at the start and then a 20-minute window later in the day when transactions went into a limbo. Nasdaq OMX chief executive officer Robert Greifeld has already admitted that a “poor design” in software delayed sales completions. But SEC officials will still review whether the operator took enough care setting up and testing the IPO auction as well as when it found out about the breakdown.
“Their interest is twofold: to make sure that sufficient safeguards are in place to ensure that mistakes won’t happen in the future, and to make sure that decisions were not made that are not in the public interest,” former SEC chief economist Larry Harris told Bloomberg.
The most likely SEC sanction against Nasdaq OMX would be a fine, according to experts, since a more drastic measure such as revoking registration would put investors at a loss.
On May 21, the operator’s holding company announced that an error prevented execution reports for millions of shares that entered the auction from being sent out immediately to brokerages. Some orders submitted also received executions at prices different from the $42 IPO cross, causing buyers to pay more and sellers to receive less than they should have. Some reports were not sent out until hours later, leaving firms without information that would have helped them cut losses.
Total losses related to the problems may go up to $120 million. Nasdaq OMX plans to set aside about $13 million to reimburse member firms, pending SEC approval.
Facebook shares opened at $38, rose to $45 on the day of their debut, but have lost 33 percent since their first public trade.
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