The U.S. Securities and Exchange Commission has just smacked Nasdaq with a $10 million dollar penalty due to the bungled Facebook IPO last year. The SEC cites poor decision-making and poor systems management when setting up the initial public offering and secondary trading scheme. This is the largest penalty ever issued against an exchange in history.
Here’s an excerpt from the official statement:
“Exchanges have an obligation to ensure that their systems, processes, and contingency planning are robust and adequate to manage an IPO without disruption to the market. According to the SEC’s order instituting settled administrative proceedings, despite widespread anticipation that the Facebook IPO would be among the largest in history with huge numbers of investors participating, a design limitation in NASDAQ’s system to match IPO buy and sell orders caused disruptions to the Facebook IPO. NASDAQ then made a series of ill-fated decisions that led to the rules violations.”
The SEC continues by acknowledging the mistakes of NASDAQ’s senior management team when they issued a “Code Blue” conference call and decided to continue with trading on the secondary market after problems with the system were identified. Although they believed the problems were resolved by editing their computer code, the root cause of the problem was not fully understood resulting in several rules violations. The glitch caused over 30,000 Facebook orders to get stuck in the system for over two hours without being cancelled or executed.
The Facebook IPO was launched one year ago under tremendous scrutiny, and received a large amount of criticism when it could not perform to Wall Street expectations. In March the NASDAQ OMX Group issued a public apology by promising $62 million to the investors involved in the botched IPO.
Unfortunately problems would continue as financier and former Oregon gubernatorial candidate Craig Berkman was arrested for convincing investors to purchase fraudulent pre-IPO shares of Facebook and other social media companies. By swindling money from 120 investors, Berkman raised over $13 million dollars and cast a dark shadow on the Facebook IPO.
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