FINS1612 WEEK 7 TUTORIAL

Read the CFA Code of Ethics. What were the probable misrepresentations and/or omissions of facts in the amended S-1 filing?

The amended S-1 filing hoped to disclose the waning confidence in CFO during facebook's IPO. This insider knowledge that the company may not meet internal revenue forecasts, that was omitted, compelled the senior investment banker to advise facebook to file an amended S-1 filing to ensure they had the newest information. A misrepresentation may be the usage of facebook on mobile devices resulted in rapid increase in the number of ads delivered.

Did the lead underwriters violate Fair Dealing with regards to the conveyance of updated revenue forecasts? If yes, how so?

Members and Candidates must deal fairly and objectively with all clients when providing investment analysis, making investment recommendations, taking investment action, or engaging in other professional activities. In one case yes because the underwriters didn't act objectively in dealing with the investment analysis. They partially partook and skewed the analysis of the IPO when they advised the analysts to use the most recent information. However, they were fair in providing recommendations as part of their job on behalf of their clients and disclosing information as it is.

Consider the lawsuit, Morgan Stanley v. Uma M. Swaminathan. In what ways did Vanguard potentially fail in its fiduciary responsibilities toward Swaminathan?

Vanguard had the obligation to provide Swaminathan with her order, i.e. 6200 shares. Vanguard failed their fiduciary duties and provided only 5000 shares worth below the IPO price. She essentially paid for 6200 shares at $42 and only got 5000 at $41.25 in return. They did not protect the rights of the clients which resulted in this misconduct.

A US judge stated that "…internal calculations and projections are not material facts that are required to be disclosed in a registration statement." Discuss the potential repercussions to future IPOs in light of this ruling.

When new companies are not required to disclose any information regarding internal projects and calculations, investors may lose confidence and may take their investment elsewhere as they may seek greater transparency. As this ruling is backed by legal forces, the responsibility of loss on investments is unclear.