The disastrous rollout of the Facebook IPO has only served to deepen sentiment that nobody is looking out for the retail investor, said Jim Cramer on CNBC’s “Mad Money.”
“The individual investor had been crushed for so long that it was almost impossible to even imagine what could bring him back to the stock market,” Cramer said. “The lies, the disasters, the broken promises, the unreliability of the system, the inability to prosecute the bad actors who almost brought down the western financial word — all these things had made it so the retail investor would have to be nuts, just crazy to keep their money in the stock market.”
Facebook’s public offering, however, gave Wall Street the chance to show regular investors that everybody has a shot at making money in the market and that some stocks are worth owning, Cramer said. The banks and Facebook executives could have agreed to a price where everybody could win, he explained. That didn't happen, though.
Ultimately, Cramer said the banks involved in the Facebook IPO succumbed to greed and favored the issuer at the expense of the clients. To make matters worse, Cramer said documents show that the banks made a last minute decision to only tell their larger clients that Facebook isn’t doing well as it once thought. To Cramer, that information shoudl have been communicated to every investor. Failure to do so was “the disgrace of a lifetime.”
Weeks later, Cramer was disgusted by comments by Morgan Stanley CEO James Gorman, who essentially shamed the regular investor for thinking they could make a quick buck on Facebook.
“Everybody in the business knows the game," Cramer said. "Everyone is supposed to win on an IPO, especially a popular deal where it would have been easy to let everyone win. Facebook was the apotheosis of that kind of deal.
“The essence of what really went wrong was that Morgan Stanley favored the sellers over the buyers more than it should've," he continued. "Why that was, we don't know.”
With hot IPOs, an investor who requests 10,000 shares typically gets 1,000 shares. If the investor happened to get 2,500 shares, that would be a huge win. Receiving any more than that, though, would be concerning because it suggests there is not as much demand as once thought. With Facebook, many brokers got two or three times what was requested, Cramer said.
“Allocations like that indicate pure greed, typically on the part of Facebook, because Morgan Stanley makes the same amount of money either way,” Cramer complained. “But it could also be because Morgan Stanley totally just botched the deal, as they knew the fundamentals may have deteriorated and they winked and nodded to their biggest clients in a very legal, but horrible to me, [way].
Either way, greed on the part of Facebook or stupidity on the part of Morgan Stanley, the individual investor, you, be loser.”
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