THE UBER IPO HIGHLIGHTS THE EXTENT OF CONFLICTS OF INTEREST THAT REMAIN IN THE SECURITIES INDUSTRY
We could write for days about the UBER IPO and the underwriting syndicate of bookrunners led by Morgan Stanley. However, this article is focused on the abuse and conflicts of interest by the brokerage firms who pushed the UBER IPO on their own financial advisors and their own client base.
Initial Public Offerings such as UBER are huge moneymakers for firms such as Morgan Stanley and other major wire houses that help bring these products to market. The staggering profits of these big-stock brokerage firms are based on getting investors to buy the IPO. As a result, Morgan Stanley’s goal was to convince its own client base to buy UBER at the IPO. However, Morgan Stanley and other “bookrunners” have, for decades, used a classic sales system for convincing their own clients to buy IPOs. Wall Street firms use “scarcity” and “urgency” to convince their “best” clients (i.e. the minimum investment was $250,000) to feel lucky if they can get shares in the IPO at the initial offering price. In other words, these firms have actually developed a system in which they make money by taking the “risk” of underwriting IPO’s when in reality, they already have a system in place to dump the IPO by convincing their own clients and own sales force that shares of the IPO are like gifts to be coveted and only shared with the “best” clients.
The system outlined above is now on full display with the IPO of UBER and the related bookrunning for the IPO by Morgan Stanley. Although this situation is still evolving, Fortune reported this morning that the UBER IPO has lost close to $1.5 billion as of close of the market in the first days. http://fortune.com/2019/05/14/morgan-stanley-underwriter-ipo-date/. Meaning that retail investors have lost close to $1.5 billion for the privilege of being “allocated” shares of the UBER IPO while the bookrunner. In stark contrast, as is true with virtually all IPO’s, the underwriting syndicate of bookrunners led by Morgan Stanley generated over $100 million in revenues for their own pockets.
If you are a Morgan Stanley, Merrill Lynch, Allen & Company, or other financial advisors who pushed your clients to buy the UBER IPO or you are a “valued” client of Morgan Stanley, Merrill Lynch, or Allen & Company, you should really look closely at how the IPO market works in this country and the massive dollars being made behind the scenes.
From a macro view, big brokerage firms are generating billions of dollars by essentially agreeing with companies to sell new stock or new debt of those companies to their own clients. In other words, one could argue that one of the primary reasons that Wall Street has retail clients and retail financial advisors is to have a ready set of buyers for the billion-dollar underwriting industry.
At Vernon Litigation Group, we have represented investors and cross-examined financial advisors about this systematic pitch of Initial Public Offerings only being allocated to good clients and the larger allocations only going to the best clients. However, when you look behind the curtain and start breaking down the system of bookrunning, analyst promotion, and retail selling, you cannot help coming away feeling that Wall Street is simply using its client base and sales force to continue the billion-dollar cash machine know as underwriting or bookrunning. The types of claims filed by Vernon Litigation Group for this type of IPO abuse include claims of negligence, gross negligence, breach of fiduciary duty, lack of supervision, conflicts of interest, and omission and misrepresentation of material facts.
If you are concerned about your IPO investments with a brokerage firm such as Morgan Stanley, or other firms who sell these types of products, please contact Vernon Litigation Group (239) 319-4434 or by e-mail at info@vernonlitigation.com or contact us through our website at http://vernonlitigation.com.