Facebook Sparks Disclosure Debate

Information provided to analysts prior to IPO involves ‘gray area’ in Reg FD.

Facebook Inc.’s initial public offering has triggered allegations the social network and banks led by Morgan Stanley selectively disclosed crucial information to investors. Securities law experts say it’s not clear the firms did anything wrong.

At issue is whether Facebook gave non-public, material information to analysts that was then shared with select investors in the form of lower earnings projections. The answer lies in the evidence uncovered and the interpretation of Regulation FD, a U.S. Securities Exchange and Commission rule that requires public disclosure of important information.

Burden of Proof

The Menlo Park, California-based company didn’t give the analysts any materially different information than the updated prospectus, said a person close to the company. It’s standard for a company to provide guidance to analysts ahead of an offering, that person said. Larry Yu, a spokesman for Facebook, declined to comment.

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