Valley Elite to Nasdaq: Either Greifeld Is Done or We Are

By Sarah Lacy , written on June 4, 2012

From The News Desk

The recurring topic on stage at last week's D10 conference was the legacy of Steve Jobs. But the topic at dinners and in hallways and over poker games was Facebook's bungled IPO.

I had a version of this conversation several times:

"What was your take on the IPO?" (I never had to specify which one.)

"Off the record?"


"Total clusterfuck."

It was actually astounding how much that exact noun was used.

While the press has vacillated between blaming Morgan Stanley, Facebook executives, and the Nasdaq, several people close to the situation had just one angry finger to point, and it was pointing straight at Nasdaq CEO Robert Greifeld.

I wrote two weeks ago that someone somewhere should be fired for the most planned, anticipated IPO of Valley history going so horribly wrong. That person appears to be Greifeld.

There was an ironic backdrop for these conversations. Nasdaq was a sponsor of the conference, and large NASDAQ OMX letters were erected on the resort's lawn, looming over shoulders as person after person trashed the execution, the judgement, and lack of responsibility that the exchange took for the debacle. Someone joked that the Facebook executives in attendance should each go pose with one of the letters. Not surprisingly, that didn't happen.

Nasdaq might have done better to dispense with the fancy lawn art and do some serious damage control. Maybe starting with an apology?

Two people close to the situation said that the Nasdaq failure was due to running entirely new software for the IPO, which had never been used in the market before and was totally un-battletested. Greifeld has already admitted the design was "poor."

That's unimaginable to anyone who has worked at a technology company -- you know, the very companies that Nasdaq is trying to court to list on its exchange. No one in his or her right mind would test new software during the most intense peak moment imaginable, and the moment the world and all future customers would be watching.

People close to the situation are further irked at how Nasdaq handled the breakdown after the fact. In the immediate aftermath, the exchange blamed the poor performance on overwhelming volume, but that shouldn't have been a shock. One person close to the situation told me the allocation was several times oversubscribed at $38 a share, with many institutions willing to go higher.

This person also said that Nasdaq's problems were hardly limited to half an hour. It had problems executing orders all day Friday and well into Monday. Some people believe the Nasdaq is deliberately misrepresenting the issue because of liability.

Given the demand Morgan Stanley was seeing for shares, and the inroads the New York Stock Exchange has made with tech companies -- and how hard won the Facebook listing was -- no one I've spoken to with knowledge of the situation can even hazard a guess at why Nasdaq would have done something so irresponsible.

There's been some speculation that the new system favored more short term, in-and-out traders. "If that's the case, Nasdaq has lost sight of who its customer is," said one person with significant IPO experience who was shocked at the lapse in judgement given what was at stake for the tech industry, Facebook and Nasdaq.

The most galling part to people I spoke with: Greifeld wasn't even at Nasdaq HQ making sure the system was working; rather he was standing next to Mark Zuckerberg in Menlo Park mugging for cameras. "He should have been in New York running the thing," a source said. Meanwhile, "the head of Nasdaq's technical operations was in Philadelphia."

And this is the exchange that's known for being tech-savvy.

Last week it looked like there was enough blame on this IPO to go around. But as more information comes out, it seems to keep coming back to Nasdaq. Or at least that's who the tech decision-makers have picked to be the fall guy. And everyone's pissed -- firms like Fidelity and Knight Capital who lost tens of millions of dollars have specifically blasted the Nasdaq in the press, individual shareholders who weren't protected have done the same, and companies who were planning to use the tailwind from Facebook to file and now have to pull IPOs or price lower than they'd hoped.

Ironically, the botched system hurt Facebook the least. No doubt, the company is having to deal with internal cultural issues, lawsuits, and a PR black eye. But at the end of the day, Zuckerberg has bullet-proof control so can't be ousted by a pioneering Dan Loeb figure and the company has some $11 billion in cash to keep building its business. People close to the situation who saw the demand for the stock are convinced it'll rise again.

One could argue the Nasdaq essentially just gifted a cheaper Facebook to people who couldn't get in on day one. If they liked it at $38, they should -- in theory -- love it at $28. Of course, for confidence to be restored, Facebook needs to nail a few quarters, and given reports that the second quarter will be at the low end of analyst estimates, that could be a challenge.

A smaller, less-proven company might not have escaped such a "clusterfuck" so intact. That has to terrify companies who were planning on filing.

Will a big tech company list on the Nasdaq again? It was a question I asked many a CEO and investor last week. The answer I heard over and over again: Not as long as Greifeld is there.