Is Morgan Stanley the Only Culprit in the Facebook IPO Catastrophe?

Morgan Stanley (NYSE:MS) stands to collect $68 million in fees for being the lead underwriter during the controversial Facebook (NASDAQ:FB) IPO, much more than its fellow banks. According the a report in the Wall Street Journal, Morgan Stanley’s lead banker Michael Grimes ran the investor meetings during the social network’s process of going public and was in constant close contact with Facebook’s chief financial officer David Ebersman. The underwriters’ fee structure during the filing was also somewhat unusual, with Morgan Stanley receiving 38.5 percent of the total $176 million in fees, JPMorgan (NYSE:JPM) getting just over 20 percent, and Goldman Sachs (NYSE:GS) landing only about 15 percent.

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The report adds that Grimes and Morgan Stanley convinced Facebook to “shut out” JPMorgan and and Goldman Sachs from several meetings with prospective institutional buyers. They also “supported increasing both the number of shares offered and the price range, a rarity, despite misgivings expressed by a Goldman executive.”

Facebook is the only IPO in the U.S. since 1995 that topped $5 billion to have a fee structure not split equally at the top, according to Dealogic. Visa (NYSE:V), which holds the record for the largest IPO ever at $19.7 billion, split its fee equally between JPMorgan and Goldman Sachs, according to the WSJ report. General Motors (NYSE:GM) did the same with its $136.1 million in fees for Morgan Stanley and JPMorgan.

Morgan Stanley has been the top U.S. IPO underwriter in both 2011 and 2010 while focusing on tech firms. It helped take public 14 of the 32 Internet companies that listed in the U.S. since last year, including LinkedIn (NYSE:LNKD) last May and Zynga (NASDAQ:ZNGA) in December.

The offering price of Facebook stock was set at $38, but shares went public on May 18 facing technical glitches at the Nasdaq stock exchange. The stock ended the day 23 cents higher, but its price has fallen since, trading today at $31.86. Shares are down more than 20 percent from the offering price, and both the social network and its underwriters have been the target of lawsuits from investors and are facing criticism regarding their strategy.

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