Facebook's first investors and some of its directors can sell 271 million shares of the social network on Thursday, according to security filings, as Facebook's initial public offering "lock-up" period ends.
The lock-up period prevents insiders from unloading shares too near an IPO, generally 90 days after the stock debuts, according to the Associated Press. And if they do unload all their shares, that could mean a flooding of the market and a plunging stock price. Facebook stock has already fallen from its $38 IPO price in May to $20.38 Aug. 14. In the next few months, a total of 1.9 billion shares could be on the block -- more than four times the existing 421 million shares that have been trading on the stock market.
While the investors and directors may not sell, there's certainly no guarantee they won't.
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Wedbush analyst Michael Pachter told AP that top executives wouldn't sell because it would look bad for the company. "The only people who would sell are people who need the money," Pachter says. "I would be very worried if Sheryl Sandberg or (David) Ebersman sell, but they are not that dumb."
There are 271 million shares that open up this week for investors such as Accel Partners, Goldman Sachs, Zynga chief Mark Pincus, Peter Thiel and Reid Hoffman. (Co-founder Mark Zuckerberg won't be able to sell his millions of shares until Nov. 14.)
Our money is not on Pachter, especially since Bloomberg Businessweek is reporting that Thiel has converted more than 9 million shares
to Class A from Class B. In layman's terms, that means they are easier to trade and could likely mean that Thiel intends to sell them Thursday. After all, once a stock has dropped nearly 50 percent, investors may just want to cash out before it drops further.
Erik Gordon, a professor at the Ross School of Business at the University of Michigan, seemed to agree. “It’s certainly not a vote of confidence when a guy who knows as much about it as Peter Thiel knows about it wants to get the rest of his stock into a position so that he can sell it quickly."