Nasdaq May Receive Immunity from Further Facebook Claims

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Nasdaq May Receive Immunity from Further Facebook Claims

NASDAQ OMX Group, Inc. (NASDAQ:NDAQ) has been facing a lot of heat since its Facebook Inc (NASDAQ:FB) debacle that has sparked many lawsuits against the stock exchange.  However, due to its size as the second largest equity exchange, the Nasdaq has a “self-regulation” status which means it will most likely be immune from any further lawsuit claims from that event; particularly since the exchange has already opened up a $40 million compensation fund.

Facebook Inc (NASDAQ:FB) investors that were affected by the halt are furious and multiple institutions have been sued due to the trades not going through.  As a whole in the industry, losses due to the mechanical failure are estimated to be around $200 million.  Since Nasdaq opened the $40 million relief fund, there is only $160 million that has been affected by the machine stop, however, as I said earlier, the exchange may not be on the hook for the rest of the money.

Phillip Goldberg, a retail investor in Maryland, has filed a lawsuit in Manhattan federal court against Nasdaq.  Mr. Goldberg said that the exchange “badly mishandled” the order process which ended up costing investors a lot of money.  There are many others like Mr. Goldberg who are trying to sue the exchange to gain back some of their losses on the stock.  Unfortunately, as University of North Carolina professor, Thomas Hazen said, in order to win a lawsuit against an organization with self regulation statues “you’d have to show they were acting in bad faith,” “That’s a very, very tough lawsuit to win” (Bloomberg).  The point here is don’t expect the exchange to be paying out more due to their glitch that cost investors millions.

Facebook Inc (NASDAQ:FB) continues to be a disappointment as well.  Mark Zuckerberg still has not formally addressed the issue of his company’s stock being down 28% in under a month.  In addition, questions have risen about the effectiveness of the social networking site’s ads.  Some investors have continued to hold on to the stock but it appears Valuewalk’s thesis on Facebook was mostly right in the end.

Since the close before the Facebook IPO on May 17th, Nasdaq has lost 5.6% and Facebook has lost 28%.

The bottom line here is that May 18th was a hectic day where a lot of people made mistakes which cost them a lot of money.  Unfortunately for the retail investors, the Nasdaq may be able to get out of paying full reprimands as they are a self-regulated institution.

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The post above is drafted by the collaboration of the Hedge Fund Alpha Team.

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