Goldman Sachs and JP Morgan lent stock to hedge funds wanting to short the stock ? that is, sell it in the expectation they could buy it back later at a cheaper price, making a profit in the process. The banks earn a fee from the hedge funds for the loan of the shares.
To banking insiders this is entirely normal, but it adds to the feeling that Wall Street handles flotations in ways designed to hurt ordinary investors.
Morgan Stanley, the lead underwriter on the deal, has faced particular criticism having overseen a plunge in the share price, something it is supposed to prevent by intervening to stabilise the shares if they fall.
It has a policy of not lending stock to hedge funds if it is the lead bank on a float.
On this occasion it appears to have lost money by sticking to that, reported today?s Wall Street Journal.
Daylian Cain, a Yale School of Management professor of business ethics at Yale School of Management, told the WSJ: ?Wall Street has conflicts of interest and conflicts of interest are profitable.?
Facebook shares opened at $38 last Friday. They had fallen to $33.03 by last night?s close.
Neither of the banks involved had any comment today.
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