When news broke, just days after the IPO, that Facebook had downgraded its internal revenue projections even as it was hyping itself in the IPO, the markets were shocked, Thomas A. Dubbs of Labaton Sucharow LLP said. Facebook's value dropped 18 percent, he said.
"Revenue cuts in the middle of a roadshow do not happen as a practical matter," Dubbs said. "Some investors reported being freaked out."
In a series of pre-IPO phone calls, Facebook's treasurer told analysts at the institutions underwriting the stock about the issue, Dubbs said. That heads-up did not filter down to regular investors until after the offering, though, he said.
"They didn't disclose it in the prospectus because they didn't want to affect the viability of the offering," Dubbs said.