SEC to approve $62M NASDAQ / Facebook IPO settlement

Details on IPO fiasco settlement still not fleshed out. Cyprus issue still in play.


WASHINGTON, March 25, 2013 — Big news hit the tape this morning to launch the beginning of this Good Friday-shortened trading week. First, there was big news for U.S. investors—particularly those who were gouged by the disastrous corporate greed-fest otherwise known as the Facebook (FB) IPO—as reports started trickling out that the SEC has concluded its investigation into the debacle and will approve the NASDAQ’s plan to issue some $62 million in compensation to affected IPO investors. (Sadly, nothing has been said about the Maven’s ill-fated but blessedly short post-IPO Facebook investment.)

In other news, the Cyprus issue appears to be settled—for now anyway—with one of that nation’s banks going away while big depositors, including many wealthy Russians, getting a very big haircut in the process.

But back to the NASDAQ. The purported SEC-led settlement of the Facebook issue hinges on that exchange’s phenomenally botched opening of the IPO for trading. Everything that could go wrong did go wrong, including incorrect figures, phantom trades, trades that were thought to be executed that weren’t, and vice-versa.

Making matters worse, however, was what went on prior to this already legendary IPO disaster as Morgan Stanley and, very possibly, other lead underwriters slipped inside information to their best clients effectively conceding that Facebook’s earnings weren’t quite what they seemed, even as they relentlessly priced the issue up for blissfully unaware retail investors who’d been clamoring for the stock.

The final deal set FB’s IPO price at a whopping $38 per share. But even on the day the offering went public, aided and abetted by NASDAQ’s ineptitude, the stock briefly fluttered up over $40 per share and then began a long swan dive that cut the price of the shares roughly in half, and in fairly short order. It has yet to recover its IPO price.

Fines will be paid, some compensation will end up where it belongs—in retail investors’ accounts—but we’d guess that there will be no perp walks on this chicanery as usual. After all, New York Senator Chuck Schumer and other assorted socialists who inhabit the 1%, wouldn’t want to jeopardize the primary crony capitalist contributors to their constantly overflowing campaign chests.

Across the pond, European stocks picked up steam as Cyprus is supposed to have nailed down the details of a reported €10 billion ($13 billion) rescue package. This one still contains the highly controversial “tax” on Cypriot-based bank accounts. But this so-called “haircut” may only include deposits in Laiki, the popular name for the Popular Bank of Cyprus. The Popular Bank, in turn, is likely to get a lot less popular, as its doors will apparently be shuttered, its retail deposits shipped off to another bank, while the remainder of Laiki will be split, a la Citicorp, into “good” and “bad” banks and eventually wound down.

Details as to what will happen to larger depositors—those with accounts in excess of €100,000—are still unclear as we write this report. We’d advise continuing caution on this issue as we do with almost anything that involves the constantly fiscal and monetary shape-shifting habits of the Eurozone. We, ourselves, are beginning to regard it as something akin to Superman’s Phantom Zone, except, again, there are never any perp walks for the politicians and elites who’ve caused this debacle.

No word yet, either, as to the Russian reaction to the move which is sure to irritate their own elite class which has parked mass quantities of former rubles in high-yielding, look-the-other-way Cyprus banks. They and other big foreign depositors stand to lose the most if the current deal actually stands. It’s just a guess, but it’s likely that worries by the EU, Cyprus, and an outspoken Turkish government about letting the Russians hunker down on rich undersea oil deposits in the area also played a part in how this settlement was finally put into place.

Again, though, we’ll believe it when we see it. Meanwhile, New York stock market futures, once pointing sharply upward, now seem to be settling into neutral, so we’ll see whether there’s any follow through on Europe’s perhaps short-lived optimism.

Today’s market moves:

We suspect that no matter how today’s market opens or closes, larger investors will likely move rapidly to square up any short, long, or cash positions they didn’t take care of last week. “Distribution” (which we roughly define as quite, persistent background selling) has been ongoing now since at least February as institutions book profits while leaving the bag-holding to retail investors just getting in now.

We shouldn’t lose sight of the fact that the markets close early (1 p.m.) on Friday this week for the traditional Good Friday trading holiday. That means that this half Friday is also the last trading day of the business month and, perhaps more significantly, of the first calendar quarter. For that reason, plenty of hedge fund and mutual fund books will be balanced and whatever portfolio window-dressing that has not yet occurred will occur.

For this reason, it’s entirely possible that either later this week or early next the market may finally enter into the corrective phase most charts have been predicting. For weeks. Only the Fed’s printing presses are keeping this market up at this point, and it’s hard to say when that effect will begin to lose its novelty as a good chunk of the world is entering, or is likely to enter, into at least a mild recession.

This is our roundabout way of saying we’re going to continue to pare our portfolios, taking gains where we can and thinking hard about what stocks we want to retain going into April which could be the cruelest month.

Nothing else on tap today, at least for us. Have a good one. We’ll try to do that, too, although it’s snowing again in Washington, DC, which might be symbolic of something.

Disclaimer: The author of this column maintains several active trading and investment portfolios and owns residential and investment real estate.

Any positions mentioned above describe this author’s own investment decisions and should not be construed as either buy or sell recommendations. The current market is highly treacherous and all investors travel at their own risk, so caution should be exercised at all times.  

Illustrations, charts, commentary, and analysis are only the author’s view of current or historical market activity and don’t constitute a recommendation to buy or sell any security or contract. Views, indications, and analysis aren’t necessarily predictive of any future market or government action. Rather they indicate the author’s opinion as to a range of possibilities that may occur going forward.  

References to other reporters, analysts, pundits, or commentators are illustrative only and do not necessarily represent an endorsement of such individuals’ points of view. If specific investment vehicles are mentioned in any article under this column heading, the author will always fully disclose any active or contemplated investments in said vehicles.  


Read more of Terry’s news and reviews at Curtain Up! in the Entertain Us neighborhood of the Washington Times Communities. For Terry’s investing and political insights, visit his Communities columns, The Prudent Man and Morning Market Maven, in Business.


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