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More legal action is likely over Nasdaq's botched Facebook IPO

The SEC approves Nasdaq's $62-million plan to repay brokerages that lost money in the Facebook IPO, but UBS says it will seek to recover more through arbitration.

March 26, 2013|By Andrew Tangel and Stuart Pfeifer, Los Angeles Times
  • Facebook is listed on the Nasdaq stock exchange as shown on the board in New York's Times Square during the company's IPO.
Facebook is listed on the Nasdaq stock exchange as shown on the board in New… (Carolyn Cole, Los Angeles…)

NEW YORK — The legal fallout from Facebook Inc.'s botched initial public offering last year isn't over, although regulators approved the $62-million plan by Nasdaq OMX Group Inc. to repay brokerages that lost money in the debacle.

The U.S. Securities and Exchange Commission's approval Monday does not stop the government or other parties from taking further legal action against Nasdaq for losses suffered in the Facebook IPO fiasco in May.

Swiss banking giant UBS, for one, tallied its losses at $357 million and wants more money back than the settlement could offer.

The bank has condemned Nasdaq's plan "as inadequate and insufficient" and said Monday that it would still seek to recover through arbitration "the full extent of our losses." UBS criticized Nasdaq for its "gross mishandling" of the Facebook IPO and "substantial failures to perform its duties."

Nasdaq's trading system was overwhelmed by high volume on the first day that Facebook's stock traded, delaying trade confirmations and contributing to a chaotic and costly day for investors in the social media company.

Wall Street firms lost as much as an estimated $500 million because of Nasdaq glitches during that first day of trading.

Brokerages complained that they didn't get confirmation that trades were going through, leaving investors in the dark about whether they owned the stock or at what price. The problem was magnified as shares of the stock plunged after opening higher than expected.

After the debacle, Nasdaq Chief Executive Robert Greifeld embarked on an apology tour of the financial media, saying the IPO was a low point and an embarrassment for the exchange.

Nasdaq initially offered a compensation plan of up to $42 million, but increased the proposal after brokerages said it was too low.

Nasdaq issued a statement that it was "pleased" regulators had approved the plan, which will be administered by the Financial Industry Regulatory Authority. Commonly known as Finra, the self-regulatory body will evaluate all compensation requests made to Nasdaq.

But the exchange operator isn't pleased with the UBS decision to seek arbitration.

"Nasdaq regrets that UBS has chosen to proceed through an arbitration, rather than through the accommodation process," the firm said. Nasdaq said it has "substantial defenses" against the bank's claims.

After Facebook's IPO last year, the SEC launched a broad inquiry, but the agency has yet to announce the outcome of its probes.

Separately, public pension funds, including the Fresno County Employees' Retirement Assn., have joined a class-action lawsuit against Facebook and its Wall Street underwriters.

The suit, which is pending in federal court in Manhattan, alleges that lead underwriters gave only some select investors a heads-up that Facebook's eleventh-hour revenue forecast had soured, putting others at a disadvantage.

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