(Photo: Vanity Fair)

Rumors of Andrew Mason's imminent demise as Groupon CEO started swirling back in November, but the bubble officially burst today following Groupon's "disastrous" financial report.

Yesterday, in response to question about how the numbers would affect Mr. Mason, Groupon spokesperson Paul Taaffee told Bloomberg, "He’s here today." He was speaking literally.

Groupon just announced that Mr. Mason is being replaced. The company has named a "newly created Office of the Chief Executive," led by executive chairman Eric Lefkofsky and vice chairman Ted Leonsis, who will "serve in this role on an interim basis."

Mr. Lefkofsky, whose venture firm Lightbank recently set up shop in New York, got some attention pre-IPO when he and cofounder Brad Keywell used a Groupon funding round to cash out shares worth $451 million--a tactic he's used in the past.

As Business Insider points out, Mr. Lefkofsky also "has interests in several companies that have close relationships or contracts with Groupon that, for a long time, have represented a conflict of interest for the company, as disclosed in its SEC filings."

Take this disclosure from a recent 10-Q filing:

"[Lefkofsky's] investments may be in areas that present conflicts with, or involve businesses related to, our operations. There can be no assurance that our business will not be adversely affected as Mr. Lefkofsky devotes less time to our business in the future."

Groupon's board, which is currently searching for a new CEO, has its work cut out for them.

This week, the company revealed that Q1 revenue would be $560 million to $610 million, when analysts (on average) predicted $647.7 million. Groupon also said it lost $81.1 million (12 cents a share) in Q4, when analysts predicted a loss of 2 cents per share. That led to the largest intraday decline since November, with stock diving 19 percent yesterday afternoon.

However, shares are up in after-hours trading once Mr. Mason's ouster was announced.

In the press release, Mr. Lefkofsky thanked Mr. Mason, on behalf of the board, "for his leadership, his creativity and his deep loyalty to Groupon."

But through an unverified Twitter account, @AndrewMason tweeted a link to an unconfirmed good-bye letter that says he was fired.

https://twitter.com/andrewmason/status/307239473165516800

The letter has since been deleted, but we have a screencap from earlier this afternoon. And it has mensch written all over it.

Mr. Mason took accountability for his role in the company's financial weakness--a first from Startupland? He also praised his employees, admitted failure, referenced the NES videogame Battleroads, and asked for recommendations for how to lose the Groupon 40. (Nota bene: this is coming from a leader who presided over some sophomoric stunts and "financial voodoo," that adversely affected his company.)

OK, I’m good on the fat camp recommendations.You may stop.Thank you.

— Andrew Mason (@andrewmason) February 28, 2013

Enjoy your new waistline, Mr. Mason. Sounds like you earned it.

Grimes. (CNN Money)

After the mostly closely-watched initial public offering in anyone's memory transformed into a spectacle marred by malfunctioning trading systems and a plummeting stock price, people were bound to ask questions.

One person, Massachusetts securities regulator William F. Galvin, asked after the role Morgan Stanley  played in managing the distribution of information in the weeks leading up to Facebook's May IPO, ultimately determining that a certain senior investment banker played an inappropriate role in Facebook's communications with the research analysts covering the company.

Mr. Galvin didn't name said banker in the consent order his office released on Monday as part of a $5 million settlement, but offered enough biographical details to identify the dealmaker as Michael Grimes, the Silicon Valley insider widely credited with winning Morgan Stanley the lead underwriter role in the Facebook offering.

That settlement led New York City Comptroller John Liu to ask another question, according to Fortune. Mr. Liu has made something of a pet issue out of strengthening policies that allow banks to claw back bonuses from employees who damage the firms' reputation or bottom line.

And indeed, 2012 has seen JPMorgan take back compensation from the traders and managers responsible for the London Whale debacle, and Morgan Stanley reclaim pay from the executive who stabbed a cab driver in the hand.

So what about Mr. Grimes? Per Fortune:

"Morgan Stanley recently enforced its clawback policy against an executive whose misconduct caused financial or reputational harm," says New York City comptroller John Lui, who was instrumental in getting Morgan Stanley to strengthen its clawback rules. "Now it's paying a hefty fine for alleged securities violations. Morgan Stanley should hold the responsible executive—and possibly his supervisors—financially accountable, or explain why not."

One explanation: Mr. Grimes landed Morgan Stanley the IPO of the century, and $5 million is chump change.

Yeah, you should be sweating (Photo: scrapetv.com)

Yesterday over drinks, we asked an angel investor if he thought Gilt Groupe would actually go public this quarter or next year, as planned. Fat chance given the post-Facebook IPO market, he replied. (Stronger language was used.)

Today, Bloomberg offers a must-read, in-depth investigation into just how cynical Facebook was in the lead-up to the IPO, including obscuring material information on risks demanded by the Securities and Exchange Commission. Those vulnerabilities, such as difficulties in monetizing mobile, decelerating revenue and dependence on Zynga, became painfully evident to shareholders who have watched what was supposed to be "the IPO of the Century," drop in share price from $38 down to $19.69 as of this afternoon. 

Lest you think it's merely the vagaries of the public markets, Bloomberg outlines how Facebook's pricing structure played into that (emphasis ours):

Despite the cautionary signs, on May 15 Facebook and Morgan Stanley executives raised the asking price to a range of $34 to $38 from $28 to $35. A day later they also increased the number of shares being sold by 25 percent to 421.2 million. That was an effort to create a stronger buffer against a price decline in August when insiders and early investors were allowed to sell their stock, said one person familiar with the matter. The lock-up period was for only three months, unusually short compared to the average six months.

Some of the culpability lies with the SEC--specifically, the agency's policy that that makes a company "responsible for its own disclosures," which allowed correspondence from the SEC demanding answers about risks to go unpublished until a month after the IPO.

A dozen letters, published a month after the May 17 IPO on the SEC’s website, depict a management team hesitant to disclose information and still guessing at even rudimentary aspects of its business just weeks before the company held the largest-ever technology initial public offering.

Of course Facebook's decision not to delay the IPO after significant, last-minute changes in forecast was "almost unprecedented," analysts told Bloomberg.

There was also the hysteria leading up to the IPO. In July 2011, trading on SecondMarket suggested that Facebook had a market cap of $85 billion. Its current market cap is $42.2 billion.

While the SEC continues to conduct an “in-depth review of all the participants” in the IPO to determine if anyone left out or lied about material information, Bloomberg has outlined some of its known sins against shareholders.

In one instance, Facebook cited Nielsen as a source for statistics about social ads that actually came from Facebook's marketing materials. And it wasn't until an ultimatum from the SEC that the reference was removed. Then, in addition to Facebook's troubling uncertainty over the number of mobile users (the SEC noted that they were counting some users twice, putting total user count into question), Facebook also seemed clueless as to where in the world their users were coming from:

"The company counted as Canadian many BlackBerry users around the world because the servers are based in Canada."

But the most egregious manipulation--as Bloomberg covers in great detail--involved who was told what and when, bringing us back to the impact of Facebook's IPO on the overall market. On May 9th, the same day Facebook released a "pivotal" disclosure "to investors cautioning about the growth in mobile users exceeding growth of ads," Zuck, CFO David Ebersman, and COO Sheryl Sandberg were on the road show hyping the stock. Meanwhile:

Investor relations staff at Facebook began placing a battery of calls to equity analysts with a dour warning: sales for the second quarter and full year wouldn’t likely match its earlier guidance, according to people familiar with the situation.

Analysts adjusted their forecasts down and shared them verbally with their firms’ institutional clients, whose demand for the stock sagged as a result, people with knowledge of the matter said on May 10. Sharing that information only with institutions isn’t unusual, and it’s legal as long as they don’t do it in writing.

But it wasn't just institutions who were investing.

Yet Facebook wanted the larger retail allocation to let its users take part in the IPO, the person said. In the end, 25 percent of the shares sold at the IPO were allocated to retail investors, other people have said. That exceeds the average amount of 15 percent.

It should have been enough to delay the IPO, Luigi Zingales, a finance professor at the University of Chicago’s B-school, told Bloomberg.

Still, said finance professor Zingales, “The fact that some institutional investors got access to a company’s information that was not available to ordinary investors creates the perception that there are two sets of rules and increases the mistrust in the market.”

So who emerged unscathed from this mess? Take a guess.

There were no headaches for investors who bought equity while Facebook was still private and were able to sell at the $38 IPO price. Goldman Sachs sold 24.3 million shares, which raised $924 million at the IPO price, doubling its original investment. Greylock Partners made 18 times its initial investment, selling 7.6 million shares for $289 million. Microsoft sold 6.6 million shares, which raised $249 million, more than quintupling its initial stake.

Stay tuned for more fallout later this month "when holders of more than a billion shares, many of them employees, will be permitted to sell."

(Photo: The D Networks)

It's been almost four months since Facebook's alarmingly botched IPO, and yet its specter still haunts the markets. On Friday, $FB stock closed at $18.06 a share, dropping a sharp 5.40 percent in a single day--the worst drop a tech company experienced that day. (Comparatively, Zynga--which has been widely panned for its parachuting stock--only dropped 3.11 percent.) To date, Facebook has lost $50 billion in market value since its IPO.

And yet, despite much talk of banks and underwriters and Facebook's nascent leadership team, we've yet to pin down a real target for our IPO ire. Luckily, Dealbook's Andrew Ross Sorkin thinks he's found the likely culprit: Facebook CFO David Ebersman, whom you've probably never even heard of:

And yet if there is one single individual more responsible than any other for the staggering mispricing of Facebook’s I.P.O., it is Mr. Ebersman. He signed off on the ever-increasing offer price, which ended up at $38 after the company had originally planned a price range of $29 to $34.

He — almost alone — pushed to flood the market with 25 percent more shares than originally planned in the final days before the offering. And since then, as the point person for investors, he has done little to articulate how or why the company’s strategy will lift the stock price any time soon.

According to Dealbook, Mr. Ebersman is ultimately guilty of buying into his own hype about the price of Facebook's stock. Following a roadshow, it's typical for investors to indicate that they're interested in purchasing two or even three times more stock than they end up actually getting. Mr. Ebersman, writes Dealbook, "did not seem to appreciate what was happening. They seem to have believed their own hype and took those orders as real, giving them the misplaced confidence to push the I.P.O. to the highest possible price and issue more shares."

So what will happen to Mr. Ebersman? Nothing, so far. As Dealbook points out, Zuck told employees following the IPO: “So, you’ve heard we’re firing David?”

He was just joking. Heh.

(Photo: Wikimedia)

Back in May, when the Facebook IPO still seemed the like largest driver of wealth creation this side of the Gold Rush, Peter Thiel opted to sell only half his position in the social network, restricted somewhat by a lockup agreement requiring early shareholders to hold on to some of their stock.

However, financial documents filed today with the Security and Exchange Commission show that Mr. Thiel rushed to sell "nearly all" of his shares once the lockup expired by last Thursday, netting $395.8 million last week. That's in addition to the $638 million he made in May selling 16.8 million shares during the IPO, which brings Mr. Thiel's total earnings to more than $1 billion and counting.

Not bad for a $500,000 investment made in 2004, especially considering public shareholders have watched the stock's value drop almost 50 percent from the misguided IPO price of $38 per share.

Forbes reports that the Founders Fund futurist unloaded almost 20.1 million shares last week at an average price of $19.73 a share. Mr. Thiel was expected to sell some portion of his shares after he converted his remaining Class B shares, which amounted to more than 9 million, into Class A shares earlier this month. (While Class B shares have 10 times the voting power, only Class A shares can be publicly traded.) After that conversion, Mr. Thiel held 23.6 million Class A shares.

The Wall Street Journal says Mr. Thiel is still holding on to 5.6 million total Facebook shares, worth roughly $112 million based on a slight uptick before the market's closed today.

Another federal disclosure released today offers some clue as to where the capital "L" Libertarian will be spending his earnings. Politico reports that Mr. Thiel recently donated $1 million to Club for Growth Action, a super PAC aligned with the Tea Party. Mr. Thiel previously made a name for himself in political circles by "almost single-handedly" funding Ron Paul's super PAC, Endorse Liberty, before the fringe presidential candidate dropped out of the race.

Seasteaders and Singularitarians, start your pitching engines.

Cause you're growns-up and you're growns-up and you're growns-up!

It's been less than a week since Facebook debuted on the public markets. But each day, it seems, unearths new contenders for another round of the Facebook IPO Blame Game. (Play along at home!)

While Congress plans its investigation into underwriters like Morgan Stanley, Dan Primack dropped an interesting perspective in his Term Sheet newsletter: Blame the "adults."

Institutional investors also didn't want Zuckerberg to take Facebook public unless he added some big-name "adult" supervision. After all, what does a 20-something know about running a multi-billion dollar public corporation? Just imagine the costly mistakes he would make.

Hence hiring seasoned executives like Sheryl Sandberg as COO and David Ebersman as CFO. But the hires meant to boost Facebook's maturity level with the public markets may have backfired.

Mr. Primack, for example, has some choice words regarding Ms. Sandberg's decision to recuse herself from the underwriter selection process based on her previous relationships at Google.

Pardon me, but wouldn't such relationships actually have been important? Not to get bankers to take on Facebook as a client -- everyone wanted them -- but because she might have a better sense of who would, and wouldn't, be the best fit? And, once Facebook did pick her pal Michael Grimes over at Morgan Stanley, wouldn't it have been good to have a third opinion in the room -- particularly one so close to both key players?

Mr. Grimes, if you'll recall, helped Morgan Stanley lock down deals for the LinkedIn, Pandora, Zynga, and Groupon IPOs, which Henry Blodget credits to his "dork" cred and love of video games.

As the Wall Street Journal reports, Mr. Grimes was the Facebook CFO's "main confidant."

"This IPO was an Ebersman and Grimes show," said one of the people familiar with the matter. "They were joined at the hip."

It seems they both saw eye-to-eye on decisions that may have sealed Mr. Ebsersman's fate as "Facebook fall guy."

The Journal's sources say it was Mr. Ebersman, backed by Morgan Stanley, who decided--less than three days before the IPO--to boost the number of shares Facebook would offer by 25 percent.

His main adviser at lead underwriter Morgan Stanley assured him there was plenty of demand, they said.

That decision by the 41-year-old Facebook executive may have doomed any real chance the social-networking company had that its stock would jump on its first day of trading—a hallmark of successful IPOs.

Now, just because an IPO pop makes a big noise doesn't necessarily mean its a hallmark of success. But Mr. Primack notes, Mr. Ebsersman may also have been guilty of selective disclosure:

Then there is Ebersman, who oversees a financial operation that allegedly warned underwriter analysts -- but not others -- to cut Q2 guidance estimates (even if all it really said was "please start paying attention to what we said about mobile"). If true, what he (and MS) did may actually have violated securities regulations -- and also means he shouldn't be too quick to count his unvested shares.

While potential shareholders were fretting about Mark Zuckerberg's controlling share of Facebook, who was watching the grown-ups table?

via Wikimedia

It's official. No one at NASDAQ has been reading The Game. Today NASDAQ, which already boasts a Look at me! I'm one of you! Tumblr, made its designs on the local startup scene obvious by partnering with the mothership: New York Tech Meetup. The press release says that the partnership will be "focused on engaging, educating and promoting New York City's technology community in unique and relevant ways," but leaves out the implied plea to future Mark Zuckerbergs of the East: Don't forget us when its time to IPO!

"The partnership will include the collaborative production of a series of videos featuring New York-based tech companies and their founders; an event series focused on women in technology, held at the NASDAQ MarketSite in the heart of Times Square; and a public service announcement highlighting New York as the ideal place to build and nurture a technology company."

As we've written before, competition between NASDAQ and the New York Stock Exchange for tech IPO dollars is as fierce as Morgan Stanley and Goldman Sach's battle for the "lead-left" slot in the S-1 filing. Recently, Zynga and Groupon opted for NASDAQ, while LinkedIn and Pandora bought into NYSE's efforts to court a techier crowd.

Frank DeMaria, NASDAQ's senior VP of corporate communications offered the following statement about the partnership:

"NASDAQ OMX has been supporting and celebrating grassroots innovation since we invented electronic trading in 1971, and many of the most influential, forward-thinking technology and internet companies in the world call us home. We believe we have a unique understanding of the needs of companies at all stages, as well as a deep-rooted appreciation for innovation in all of its forms. We are excited to partner with NY Tech Meetup to offer the tech community relevant resources, networking opportunities and visibility platforms as they progress."

Bragging about inventing electronic trading is all well and good. But are these stock exchanges blind to the art of the hunt? Play to New York City's forever-second-best inferiority complex and they'll be eating out of "visibility platform" in no time.

Yo Zuck!

Listen up, Silicon Valley. Kara Swisher says you can "go the f**k back to sleep"—it's gonna be awhile. Ms. Swisher, who started her (since abandoned) gonzo live-blog on AllThingsD at 4:45am PST, the S-1 filing—and all its mystical contents—won't come "until this afternoon, after the markets close, at the earliest."

In the meantime, we're just spitballing over here.

• Facebook S-1 Filing So Potent, Impregnates Tech Blogger With A Single Scroll

• Peter Thiel Reaches Singularity

• MySpace Tom Owns Facebook Stock LOL Wut?

• Lloyd Blankfein Lies Gently Weeping

• Nothing Will Ever Be The Same Again

• Wait, Where Is the Surprise Ending?

• Links To Facebook S-1 Filing Mysterious Disabled On Google+

• Larry Page Lies Gently Weeping

• Eduardo Saverin Should Not Be Allowed To Make His Own Financial Decisions

• Why Is Twitter Censoring #FB?

• How The Mayans Predicted Facebook's Ticker Symbol

• Winklevei Winklewon't

• Aaron Sorkin Furiously Pens Facebook Sequel: The Wonder Years

• Anonymous Takes Down SEC Site, Bloggers Lie Gently Weeping

• What Time Did Facebook IPO? [HuffPo]

• Facebook Likes NASDAQ [Mashable]

• Facebook Friends NYSE [Mashable]

• Dealbook's Evelyn Rusli: Told Ya So, Suckas

• REVEALED: FACEBOOK IPO CONFIRMED THIS IS DEFINITELY HAPPENING, YOU GUYS [Business Insider]

• Sleep-Deprived Kara Swisher Spends Murdoch Fortune on Facebook Stock, Stockpiles Scoops For Eternity

Ride the wave

There has been plenty of talk in recent weeks about internet IPOs and the danger of trying to ride that roller coaster. Many stocks saw a huge rise on their first day or week, followed by a steep fall.

But over at Fortune, Kevin Kelleher points out that this kind of swing in momentum seems to effect tech stocks well outside the bubble.

He notes that New York based OpenTable, which went public in May of 2009, enjoyed a great climb to $118 in April of 2011. But over the last eight months the company has lost 67 percent of its value, settling at a little under $40.

It's not that there has been a fundamental shift in how OpenTable's business is doing. It's just that internet stocks are prone to periods of huge growth and become favourites among momentum traders.

As the companies mature, this growth slows down, and that's when the share price takes a plunge. " It doesn't take a stock bubble on the scale of the 90s dot-com mania for investors to lose money on a supposedly hot Internet stock."

Betabeat doesn't see what all the fuss about. Investors could also have taken a bath in the last two years investing in financial stocks or trying to predict the price of oil. Are internet stocks more volatile than the rest of the market? Typically. But that's the tradeoff for explosive growth.

Groupon Cat, feral as ever.

In 2011, Wall Street caught friending fever. It was a hell of a year for social media IPOs, as investment banks welcomed themselves into the money-hungry arms of Computer Nerds, Many Of Whom Should Have But Didn't Know Better. Of course, there were a few winners that weren't said banks, as well as a few you've never heard of. In 2012, Facebook will lead one of the largest tech IPOs pretty much ever, and the largest year of tech IPOs since 1999. What did we learn? Mostly, that for every bet, there's a sucker who's as desperate for money as most people apparently are for friends. So:

Who won, who lost, and who debuted on the market without anyone really knowing?

Mashable put together a great list, but they ranked it by the size of the IPO itself. The largest? Russian search engine Yandex, at $1.3B. But to switch their list up, we've ranked said tech IPOs by their gains and losses from their original IPO pricing—the cost per share as they were each set to debut on public markets—along with their position in size on Mashable's list:

1. LinkedIn (LNKD) +37.2% (5/19)
2. Bankrate (RATE) +36.5% (6/19)
3. Jive Software (JIVE) +27.9% (12/19)
4. Angie's List (ANGI) +26% (15/19)
5. Qihoo 360 Technology (QIHU) +17.9% (10/19)
6. Zillow (Z) +15.2% (17/19)
7. Groupon (GRPN) +13.1% (4/19)
8. Carbonite (CARB) +11.2% (18/19)
9. FriendFinder (FFN) +0.7% (19/19)
10. Zynga (ZNGA) -5% (2/19)
11. HomeAway (AWAY) -14.8% (8/19)
12. Yandex (YNDX) -20.8% from its IPO Price (1/19)
13. Pandora Media (P) -37.4% (7/19)
14. 21Vianet Group (VNET) -39.7% (9/19)
15. Jiayuan.com International (DATE) -45.6% (16/19)
16. Phoenix New Media (FENG) -51.9% (14/19)
17. Demand Media (DMD) -59.8% (13/19)
18. Tudou Holdings (TUDO) -63.6% (11/19)
19. Renren (RENN) -76.4% (3/19)

We plugged the top and bottom four into Google Finance:

You'll note that as of today, only two of the top four best IPO debuts are still trading above their initial gains. Even more interesting, these are arguably the three most high-profile social media IPOs of the year:

Two (Zynga, priced at $10, and Groupon, priced at $20) are largely considered failures on the market.

One (LinkedIn, priced at $45) held above their initial post-IPO selling point better than anyone else.

Now, which one do you want to put your money into? If you answered anything but "Zynga," you're wrong.

Remember what your parents (should've) taught you: There's no such thing as Getting Rich Quick (without some element of crime involved). The only winners who really made money off of LinkedIn dumped it as soon as they purchased it, or in May, when it peaked. They were not uber-savvy consumer investors like you and I who could call the highest point of a social media IPO like buffalo scouts who can put their ear to the ground and know what the heard is eating that day. No. They were psychotic day traders and people with access to proprietary trading software and people with the cynicism to know better. Anybody looking for a long-term investment who didn't get in on Day 1 and sold at That Perfect Time got generally screwed, at their own hands, mind you!

Those who listened to the press about Zynga—they have a psychotically productive work culture and the way they're intertwined to social networks like Facebook in the same way their investment bank underwriters are with the fate of global finance (a sure path to monetary success)—have held on, and are so far being (however slowly) reminded why they invested in the first place if they weren't on the Social Media IPO Euphoria Bandwagon. Their fate has yet to be fully written—things could still go really bad, like a tray full of vowels in the hands of even the best Words With Friends player—but it's also the most promising of the three.

The lessons from 2011 in Social Media IPOs are clear:

1. Don't buy on Day 1.
2. Don't believe the hype. Ever.
3. If you're a human being who doesn't invest with a monolithic institution, you will never show up to this gunfight with anything more than a knife.
4. If you have a social media company, chances are your IPO will not go extraordinary well. Consider this before going public.

fkamer@observer.com | @weareyourfek