Bloomberg's bomb: How SEC shredded Facebook's pre-IPO claims
I'm under regulatory scrutiny, bitch
According to a recently publicised set of emails, US financial watchdog the Securities and Exchange Commission found that important claims made by Facebook were unsupportable and forced the company to disclose key weaknesses in its business plan before its 18 May IPO.
The highlights are outlined in this lengthy report from Bloomberg - today's must-read. The background of the story is the great Facebook IPOcalypse, which was billed as the "IPO of the century" but has generated dozens of lawsuits, with the current stock price bumping along at around half of initial asking price.
In the ensuing blame game, the SEC is not going to be a patsy - hence the detailed and damning disclosures of 12 emails passed between SEC and Facebook law firm Fenwick & West LLP.
According to the emails, Facebook dropped some citations from its prospectus after the SEC queried whether the sources - including a purported "Nielsen survey" - supported the claim. The SEC also noted that Facebook had counted "some mobile users" twice.
Facebook also appeared to have omitted key indicators such as decelerating revenue growth, declining user counts and its heavy reliance on virtual poorhouse Zynga, which it apparently included only after SEC requested the specifics.
(Facebook counts you as an active user even if you never visit the site - but merely click a 'Like' or leave comment on a third-party site as an authenticated Facebook user.)
According to the emails, published here on the SEC's website, Facebook's initial filing reported Zynga as contributing around 12 per cent of the social network's 2011 revenue - but further emails revealed that it was substantially higher; Facebook had omitted the advertising revenue it reaped from Zynga apps and so had to revise the figure upwards to 19 per cent of revenue.
According to the emails, Facebook also dragged its feet over disclosing just how many people accessed the site through mobile devices. One of the most controversial aspects in Facebook's IPO was its struggle to monetise mobile access - which is how, increasingly, people engage with the site.
The most remarkable passage in Bloomberg's report details how Facebook's bankers - JP Morgan, Goldman Sachs and lead underwriter Morgan Stanley - nevertheless agreed to raise the asking price in May - from $28-$35 to $34-38.
They reached consensus on pricing the IPO at the top of the $34 to $38 range, as a lower level would have signaled weakness in demand, said one of the people close to the situation.
And we can't have that.