Newspaper article International Herald Tribune

Facebook Investors Clamor for Answers ; Brokers Blame NASDAQ for Losses during Social Network's Stock Offering

Newspaper article International Herald Tribune

Facebook Investors Clamor for Answers ; Brokers Blame NASDAQ for Losses during Social Network's Stock Offering

Article excerpt

Brokers like Scottrade have almost universally declined to take direct responsibility for the losses their customers experienced as a result of technical flaws on Nasdaq.

John Hoag thought he had dodged the botched initial public offering of Facebook stock when he canceled his order last week for 100 of the company's shares. This week, Mr. Hoag, 63, a property manager in Tennessee, learned from his Scottrade broker that he was being charged $3,805 for the shares anyway, plus a commission fee.

When he made a complaint, he was told by e-mail that he would have to go through a compliance office, which typically takes 7 to 10 days to respond.

These are the days of the runaround for thousands of ordinary investors who were snagged when the much ballyhooed initial offering last week had problems.

By Nasdaq's own admission, trading of 30 million Facebook shares was executed improperly because of technical flaws on the exchange, the largest such problem the exchange has experienced. On a normal day, most of the trading would have been done by big financial institutions and trading firms, but on the day of the Facebook I.P.O., an unusually large proportion of the trading was done by ordinary investors, hungry for riches from the biggest Internet initial offering ever, through brokers like Scottrade, Charles Schwab and Fidelity.

These retail investors have spent much of the past week looking for someone to address their losses or even just to answer questions about where they can take their complaints. The stockbrokers have generally said the problems were caused by Nasdaq, where technical issues delayed the start of trading 30 minutes and mishandled large numbers of orders to execute or cancel shares.

But retail investors are not members of Nasdaq and cannot file complaints with the exchange, as large financial institutions can do. Brokers like Scottrade have almost universally declined to take direct responsibility for the losses their customers suffered. The frustration of these customers has played into a broader sense that small investors got the worst of the deal in the bungled Facebook offering.

"They are just spitting in the face of the retail investor and protecting the people that are responsible for this I.P.O.," Mr. Hoag said.

On Friday afternoon, Facebook stock was down 3.5 percent, at $31.86, about 16 percent below its $38 offer price.

Whitney Ellis, a Scottrade spokesman, said the "issues were industrywide and beyond our control."

"Clients who have shares of Facebook stock in their accounts can trade their shares at any time," Mr. Ellis said. "We have tried to address every client's concerns on an individual basis and will continue to do so until everything has been resolved."

Not all financial institutions have treated their customers the same. On Thursday, the bank that led the offering, Morgan Stanley, held a conference call for its employees in which it detailed a plan to take losses on behalf of customers who had lost money because of first-day errors, even when the problems were caused by Nasdaq. This provided some positive attention for Morgan Stanley, which has been the subject of intense scrutiny for its handling of the public offering.

Knight Capital, a major trading firm, said late Wednesday that it had incurred about $30 million in losses as a result of the issues at Nasdaq. …

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