As Facebook officials were busy hyping the company's $16 billion IPO, the company quietly told its underwriters Morgan Stanley, Goldman Sachs and JPMorgan to scale back 2Q earnings estimates.
Facebook was concerned increased mobile usage would cut into earnings and the underwriters, who analysts covering the company, were too optimistic about second-quarter earnings prospects. But who did Morgan Stanley, Goldman Sachs and JPMorgan tell about Facebook's warning?
Top clients get information first. Of course, smaller investors and those buying shares in the open market never received this information.
This selective disclosure provides investors close to the underwriters an advantage small investors don't enjoy. In the three days since Facebook went public, the shares have lost 18%.