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Investing

Morgan Stanley’s Tiny $5 Million Facebook Fine

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By Douglas A. McIntyre Published
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Facebook
courtesy Facebook Inc.
Morgan Stanley (NYSE: MS) was fined $5 million for its role in the botched Facebook Inc. (NASDAQ: FB) initial public offering. The Secretary of the Commonwealth of Massachusetts, William Galvin, set the fine. According to Bloomberg, it was for “dishonesty, ethics violations and failing to supervise employees.” A Morgan Stanley analyst’s opinion of Facebook’s prospects was affected by the firm’s investment bankers. The fine is so tiny, it is not likely to dissuade banks from future violations, and it sends a signal that states believe they have little leverage in similar cases.

Perhaps Massachusetts believed its case against Morgan Stanley was too weak to stand the scrutiny of a court fight. Or, perhaps state officials believed that the infraction by the bank was minor. Morgan Stanley was faulted and the state said the firm would refrain from infractions of laws about research and investment bankers in the future. But, if the infractions existed, why was the fine so modest?

Morgan Stanley still faces scrutiny from federal agencies. The Securities and Exchange Commission apparently has taken up the case. But if the Massachusetts settlement is any precedent at all, Morgan Stanley will not be fined, or any penalty levied will be meaningless, given the bank’s balance sheet and revenue.

The notion that government can “send a message” over the behavior of investment banks that was clearly wrong did not live up to expectations in the Morgan Stanley case. Perhaps in very different cases, which involve the sales of mortgage-backed securities or Libor rigging, the government has taken and will take a harsher stance. In the meantime, hundreds of investors who put money into Facebook will find they have little recourse, even if Morgan Stanley behaved badly. It is as if the bank did nothing wrong at all.

Douglas A. McIntyre

Photo of Douglas A. McIntyre
About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.

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