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Flippers, a Green Shoe and a Red Herring ...

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Anyone recall names like and The hysteria of owning a piece of the proverbial pie in the sky has once again leveled small investors to reality. 

Taking a stock position in Facebook can be quite scary and I get that. In fact, I wouldn’t trade a single share of FB stock, not even with your money; or at least I wouldn’t do it “naked,” (pun intended, options now trade on Facebook). While Facebook stock is off to a dubious start, it’s not by any means the worst IPO even in recent history. A number of IPOs have fared much worse. Fan favorites like Groupon and Pandora each tanked by -45% and -34%, respectively, after being sold to the public. But none had such a sudden demise as the fad crazed buyers of Facebook right out of the gate. Purchase order imbalances, extra “green shoe” shares unloaded in the early hours of trading and omissions from the “red herring” prospectus prevented the flippers from the easy gains they anticipated.

Since its listing and sale to the general public, Facebook has plunged $19 per share from its high water mark of $45 and bounced off of $26.44; possibly leveling some investors with a 42% loss (on paper). So has the frenzy to own the world’s most recognizable social media name become the world’s largest lawsuit? Boy wonder Mark Zuckerberg allegedly sold $1 billion of his infamous stock just prior to the bottom falling out, which has the 28-year-old whiz kid in the crosshairs of some very old, stodgy money that doesn’t like losing trades.

At the crux of the recently filed, billion-dollar class action lawsuit is the belief that Facebook could have or should have known there isn’t enough advertising revenue to support the IPO price of $38 per share. Moreover, plaintiffs believe that this flaw was divulged only to the largest investors through selective disclosure methods. While this remains to be proven accurate, if it is true, then say goodbye to Joe Public buying stocks for another decade or more. And just when they thought it was safe to get back into the water …

Other questionable Zuckerberg actions include his knee-jerk wedding immediately after the IPO of Facebook; making it appear that he didn’t want his wealth comingled with his new spouses. This one probably won’t hold water, however, as the value of Facebook was established weeks prior to the wedding. One of the founding partners with “Suckerberg” has also raised a few eyebrows by renouncing his U.S. citizenship after striking it mega rich in Facebook stock. 

Leaving the USA to avoid paying taxes on future stock sale gains, or potentially avoiding the Taxmageddon looming on our national horizon in the form of expiring estate tax cuts, could make Abraham Lincoln want to hightail it out of here. Nonetheless, it is still just bad form to take your money and run. Even my low stakes, friendly Texas Hold ’Em poker buddies wouldn’t appreciate that tactic.

Trying to outwit our IRS has never been an easy task; ask Al Capone, who was eventually jailed for tax evasion (not on criminal charges from illegal booze or organized crime). Who knows what this fellow is laying the groundwork for, but leaving the country in the wake of a huge sale certainly sparks great speculation and not-so-nice feelings toward the other mega-millionaire behind Facebook.  

Facebook’s meltdown has obviously cut Zuckerberg’s personal wealth by as much as 25% … but it’s tough to feel sorry for a person with $15 billion cash in the bank. The lesson from all of this? Sock puppets and 24/7 status updates to “friends” worldwide still doesn’t guarantee a profitable investment. 

For more from Michael Ham, see:

Tail Wagging the Dog: Annuity Carriers Stealing Your Clients?

Aviva: What to Expect When You’re Expecting

Chicken Little? Maybe a Little

Michael Ham is the founder of the revolutionary marketing system at; this article is intended for investment professionals solely and not to be misconstrued as a recommendation to buy or sell any investment, product or security. Information is deemed to be accurate but cannot be guaranteed to be so.


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