Issa: Facebook's messy IPO revealed ‘substantial flaws’ in stock sale process

By Peter Schroeder - 06/21/12 02:17 PM ET

House Oversight Committee Chairman Darrell Issa (R-Calif.) wants regulators to look into "substantial flaws" in the initial public offering (IPO) process in the wake of Facebook's botched offering.

In a lengthy letter sent to Securities and Exchange Commission Chairwoman Mary Schapiro, Issa asked for detailed answers on potential problems with the IPO process, citing the recent woes of Facebook's offering.

"In this day and age, under fierce global competition for capital, we must modernize regulations alongside our vastly changing economic landscape," he wrote.

"The investment banks were given almost 80 years to enjoy this flawed law, fraught with conflicts of interest and incentives to misprice shares," he added, referring to the Securities Act of 1933. "Among other things, I ask that you take advantage of the vast improvements in communications technology to protect investors while unleashing capital formation to strengthen our economy."

Facebook's highly anticipated offering was marred by a number of problems. Technical glitches from the Nasdaq stock exchange delayed its stocks from trading publicly for a half hour, after which the stock's value tumbled out the gate.

Reports later revealed that not all investors learned that analysts had trimmed revenue expectations for the social media company just before its stock hit the market, leading to questions on whether certain institutional investors were given an unfair advantage.

Issa pressed Schapiro on how underwriters set the price of an IPO and asks if there is a better way for the market to set the price with public involvement.

Issa is not the only lawmaker looking into the IPO process. In the Senate, a Banking subcommittee probed Wednesday whether retail investors were put in an unfair position during IPOs, discussing the matter with several market experts.

While lawmakers have expressed interest in what happened with Facebook's IPO, there has not yet emerged a legislative proposal to overhaul how the nation's companies bring their stock to the public.