Citi Wants To Reclaim Money Lost During Facebook IPO

Max 'Beast from the East' Smolaks covers open source, public sector, startups and technology of the future at TechWeekEurope. If you find him looking lost on the streets of London, feed him coffee and sugar.

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Nasdaq set to pay out with hundreds of millions of dollars at stake

US financial services giant Citigroup is seeking compensation from Nasdaq for the losses incurred during last year’s Facebook IPO, according to sources close to the matter.

When Facebook went public in May 2012, Nasdaq’s systems were overwhelmed, meaning some buyers did not receive confirmation of their orders and had no idea whether they had actually bought the shares, or at what price. The glitches were estimated to lose investors around $500 million.

Securities laws and Nasdaq’s own policies have mostly shielded it from responsibility for any technical problems. This hasn’t gone down well with the investors. Swiss bank UBS alone had claimed losses of $356 million, and previously said it would attempt to recover the full amount from the stock exchange, through legal action if necessary.

Payback

The Facebook stock launch, hailed as the biggest technology IPO ever, was plagued by technical problems and many investors have claimed the shares themselves were overvalued. The $38 (£24.5) share price made the company worth $104 billion (£67.2b), when its profit for the whole of 2011 was just $1 billion (£0.65b).

Facebook IPO © lev radin, Shutterstock 2012The amount of orders on 18 May overwhelmed the systems of the second-largest US stock exchange, causing a 30-minute delay in trades and leaving investors and brokers in the dark over the results of transactions involving millions of shares.

Wall Street Journal reported that Citigroup is looking closely at the compensation plan set up by Nasdaq to recuperate its losses. However, this plan, approved by the Securities and Exchange Commission last month, limits responsibility of the stock exchange to $62 million, something other investors could dispute.

Citigroup told Reuters in May 2012 it lost around $20 million on Facebook shares during the IPO. Knight Capital Group, which claimed losses of $35.4 million, is another company participating in the compensation plan.

Meanwhile, UBS, Switzerland’s biggest bank which declared losses as high as $350 million, has already filed its own demand to fully recover the money.

When NASDAQ systems went under, orders from UBS were mistakenly entered multiple times. As a result, the bank received about 40 million Facebook shares, instead of the 800,000 it wanted. It was then forced to quickly sell the stock at a loss of $8 or $9 apiece.

Facebook shares currently trade at around $26.85, a third under their IPO price.

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