i'm erin burnett. "outfront" tonight, dive bombing the carcass. it's just an image that makes me think of the field growing up, dead deer, entrails everywhere, buzzards coming in with their ugly little red bobbles. that's what it looks like for facebook. at least three lawsuits filed in connection to the facebook ipo. plus investigations by the securities and exchange commission and the massachusetts secretary of the commonwealth. of course, public embarrassment. headlines like these on the front pages. the best one today went to cnn money. bumpy start just got a little worse. inside facebook's fumble was from "the wall street journal" and "the washington post" called it a debacle. here's where the stock closed today, at $32 a share. down $10 from where it opened on ipo morning at $42. that means it's lost a quarter of its value since it opened. that is pretty stunning. and you say how? how could one of the most anticipated offerings in american history, and the biggest in terms of size in this country's history, one that was supposed to invigorate and once again make the stock market a place for regular people to play, go so wrong? as everyone in this country is now aware, facebook's numbers don't appear to add up. there are two things that are crucial to know, to see if the billions in dollars of cases against facebook and its bankers are going to hold up. one, facebook amended its offering to the public, and it offering to the public, and it did this saying it was struggling to make money in mobile devices, where more and more people are accessing their facebook accounts. now, this caused some analysts to slash their estimates of facebook and how much money the company could earn. now, the second thing. morgan stanley, the bank responsible for pricing the ipo along with facebook management, made the decision to increase the price and the size of the offering, and this was not a small decision. they increased the price by 52% from the original bottom of the range. and the size by 25%. this is stunning. and they did it after facebook had said it wasn't earning as much money. just in case i'm not clear here, they increased the price of something just when the world learned it wasn't as valuable as it seemed the day before. that's pretty incredible. now, what people familiar with the situation at facebook tell me that there was so much demand that they did price it right. that they're sure they did it right that. the blame is on nasdaq, which completely blew the opening of the stock. that may be true. but the question is was there fraud? was there something illegal? that could cost facebook and those big banks billions and billions of dollars. one lawsuit says yes, and i have it here today. facebook shareholders filing a class action lawsuit against mark zuckerberg and his top management team, and also, the underwriters of facebook's ipo. five banks are also named as defendants, including the one in charge. and that name there to look at is morgan stanley. all the others being sued, but ultimately the one that was responsible is the lead, and that's morgan. investors claim they've lost more than $2.5 billion since friday thanks to misleading information. john avalon and paul cowen are with us tonight. paul, let me start with you as an attorney. i've talked to a lot of s.e.c. attorneys today. i've talked to the s.e.c. about some of these very specific allegations. do you think this case has merit? basically it's saying facebook, they changed this. it was a material thing to say look, we can't make money in mobile and it's future. we haven't yet. they amended it. that was given to everybody. but then, morgan stanley and the banks said look, this is really going to hurt how much this company can earn and not everybody who was buying the ipo was made aware of that. fraud? >> well, it's a close question. if you believe every allegation and the complaint, yes, it does make out a claim of fraud. but i think we have to step back a little bit and say also that every time there's a public offering on a company like this, the class action lawyers swarm around it and file lawsuits because the legal fees that are collected in a case like this are staggering. multi-multi-millions of dollars in fees for the lawyers, so there's not a lot of incentive to sue. you almost always see suits. we've got to see what the discovery reveals in this case and we've got to see more details to know if there is a case here. >> let me bring in robert weissman, the lawyer representing plaintiffs. let me ask you, sir, what is it exactly you are alleging that happened wrong? facebook did file that amendment that was available to everybody. and the investment banks, at least as far as all my conversations with s.e.c. attorneys and the s.e.c. today abided by the law. >> well, good evening. and thank you for the opportunity to address these very serious allegations. with respect to the allegations in the complaint, i think mr. callen hit it on the head. it will be very interesting to see what the discovery reveals in the case. i would like to correct an important point of law that perhaps you or maybe some of the viewers haven't grasped, and that is we don't have to prove fraud to succeed in this case. and that's a critical distinction in the law that comes up specifically in connection with an initial public offering or a secondary offering of stock. if the plaintiffs can demonstrate that there was one material misstatement or omission in any of the offering documents, they're entitled to receive monetary damages. >> so what was left out? but let me just ask you what was left out. because they did file an amendment talking about this mobile issue. a few days later, the banks that were underwriting it, they're not allowed to publish research. they did tell some of their clients they think this will affect the earnings. that wasn't made available to everybody. but bti research -- i'm holding a research report here, available to everybody, you can log on, get a password, you don't have to pay for it. says the exact same thing. this is a problem. evaluates the whole thing. so seems to me the information was available to everybody. the concern on wall street was. >> well, the question is when is the information available to everybody and what were the specific representations made in the offering document itself? because that is the document that investors are allowed to rely upon as a matter of law. it's interesting, because now there are lots of stories circulating around regarding either everything from financial blogs to analyst reports, questioning the value of the -- questioning facebook's valuation and where a good entry point is for investors. but where were the representations in the offering document? where were the disclosures regarding certain select morgan stanley or jp morgan or goldman sachs clients? where were the disclosures that certain privileged clients of those banks -- >> well, that's what i'm trying -- this is something -- and maybe you're going for a broader change in the law. my understanding of the way the law is is if one of the banks is an underwriter and you're a research analyst that works for that bank, you are not allowed to publish anything when your investment bank is underwriting an ipo. that's the law. when you have a view on the stock, all you can do is talk to people on the phone. ptig was not involved and they put all this in a research report, which was available to everybody. and it's in the prospectus, right? so i'm just trying to understand where there really is -- people are pissed, i get it, i would be, too, but that's different than having facebook paying billions of dollars. >> right. and understand that to extent that a lot of the media over the past few days has made the point that the offering was bungled in some manner. either because it was oversubscribed or it wasn't priced appropriately. and it is important to understand that that is not our claim. and to the extent that morgan stanley or any of the other underwriters were negligent, that is not an actual claim under the securities laws. so i would agree with you that in that -- to the extent that there were tactical decisions that were made in connection with the underwriting process and if those decisions were made in good faith, they're not actionable. specifically, you're right, we are specifically challenging the statements regarding trends in the company's business, the company's historical earnings, likely future earnings, and there really are two different issues here. just to be perfectly clear. and i talked about this somewhere else earlier today. that there really are two prongs. one is the specific representations or omissions in connection with the offering document. and then you've got the regulation, the reg fd issue, which is a completely separate issue. >> right. >> and in some ways, those reports based on what's out there in the public domain right now are actually more troubling, at least from my own perspective. >> right. >> the reason why you have that rule -- that rule is the product, the early 2000 frauds, and it really is an example of wall street, the worst part of wall street doing business in the same old tired ways -- >> right. >> that hurt investors, hurt consumers. and my personal opinion is that reg fd has actually been effective. and has served as an effective deterrent. >> thank you very much. i want to hit pause right there because i want to drink paul and john back in. it's an interesting point what he raises. what this is supposed to do is not have an analyst at a wall street bank say all kinds of rosy wonderful things about an underwriting that they think is a pig or other things, if you remember what happened ten years ago, while their investment bank is trying to sell it. what you saw here was morgan stanley research saying we don't like this thing. bankers are trying to sell it. and now it's being called a conflict of interest or something. >> when ordinary people look at this, this is a company that was founded in a harvard dorm room, right? i don't know, what, ten years ago? very short period of time. >> yes. >> now they have 443 million subscribers worldwide. but does anybody really think that it's not a risky investment? is there somebody out there who's buying it for $38 a share who isn't rolling the dice that maybe it's going to double or triple or quadruple? are they relying on these papers? all this lawsuit is an attempt to use these federal regulations to generate a lot of legal fees in the end. >> buying facebook, everyone knew it was risky. it was going public at a price that really valued the company, 26 times its revenue. google went public at ten times. so it was very expensive. nonetheless, the performance of this has taken the bloom off the rose. anyone who was hoping this would get the little guy back in the market believing again, this is a rigged system. >> and that's the larger point i think, is that people do feel like look, this is high finance. we hoped for some transparency. is the system rigged against the little guy? but a lawsuit like this, making the case that it's assigned for a class action lawsuit. the overall reputation of the market is a place where the little guy can play and succeed and invest. that's a different thing. it's not actionable, but it is an issue of perception. >> that's my issue with it. an issue of perception. >> that's my issue with it. you can look through this and say the perception and go through the rules and say it doesn't add up burke there is that problem. you want everybody to feel they can participate. this was supposed to be one of those democratic ipos and it obviously was not. next, mitt romney calling the civil rights issue of our time. we're going to tell you what it is. by the way, just in case you were wondering, it's not gay marriage. and tonight, the tipping point. war or peace with iran? will the country wave or walk? and we've obtained an e-mail exchange between george zimmerman and the police chief of sanford, florida. i went to a small high school. the teacher that comes to mind for me is my high school math teacher, dr. gilmore. i mean he could teach. he was there for us, even if we needed him in college. you could call him, you had his phone number. he was just focused on making sure we were gonna be successful. he would never give up on any of us. mine was earned off vietnam in 1968. over the south pacific in 1943. i got mine in iraq, 2003. usaa auto insurance is often handed down from generation to generation. because it offers a superior level of protection, and because usaa's commitment to serve the military, veterans and their families is without equal. begin your legacy, get an auto insurance quote. usaa. we know what it means to serve. our second story "outfront," mitt romney coming out with what he says is the civil rights issue of our time. no, not what you're thinking. whatever it is, i bet it's not what you're thinking. it's education. it's education. who's going to fight with you on that? here's what he's saying. he's defending choice for parents, taking on teachers unions for what he says are the wrong priorities. he says education is the civil rights issue of our era. >> i'm going to give the parents of every low-income and special needs student the chance to choose where their child goes to school. for the first time in history, federal education funds will be linked to the student so that parents can send their child to any public or charter school of their choice. >> ryan, in the advance text, he called for vouchers. when he actually spoke, he didn't use the word "voucher", which is sort of a word that people have a passionate feeling about whether they have thought it through or not, just one of those words. how's it going to fly? >> i think the basic thing is you've also seen in this in president obama's race to the top proposal. the idea is use federal money as leverage to get structural reform. so one idea is lift caps on charter schools. -and-one really important thing mitt romney said is let's be sure the digital learning options aren't prohibited. you have a lot of unions at the local level that are saying hey, we want to fight virtual charters and other things that are giving more importants more -- parents more nontraditional choices. the florida virtual school is offering a ton of classes. it's expensive to offer a.p. classes. >> so these are supplementary. >> allow them to do both of those things and allow that option to expand. for some kids, that's going to be the right option. >> john, you also think this voucher concept can work? >> i think this is a bold proposal by the romney campaign. too often in terms of policy, we've been very clear about what mitt romney is against, but this is a very bold policy in terms of what he's for. school choice. politically it's a winner too because the democrats are backed in. president obama has a pretty good record on some issues like merit pay for teachers, but there's no way a democrat can back school choice at the federal level. mitt romney just did. it's going to move a very important debate forward in this country. >> so vouchers obviously would be the operative word. but when you look at some of the other things mitt romney is for, charter schools, more accountability for teachers, school report cards. that's what president obama wants, too. so really, are they all that different? >> you know, they're not all that different, except in one respect. and i'm glad mitt romney recognizes this challenge, because it is a huge challenge, it's a challenge that we face. it is the civil rights issue of our time. the problem is mitt romney's plan actually doesn't do what he says because it doesn't have any sticks in it. it's all carrots, it's no sticks. what happens to the schools that are left behind? so let's say that every child is able to leave and go to a new school. what happens to the kids who are left? you've got to be able to turn those schools around. if you turn those schools around, you need people who are go into those schools and really make a difference. so i was talking with my brother today who is a middle school principal in washington where they're doing a lot of school reform. he says the problem is you don't have enough teachers and principals who are prepared to go into these high-risk, high-crime, low-performing schools and be able to really make a difference. you need better supply. so he's really -- if i were mitt romney and the republicans, i would focus more on getting more kids out of these education schools, out of college who can go in there and make them fight. >> you got to be able to fire the people who aren't good. >> you have to have different schools pursuing different strat justice. i would say the big difference between their strategies is one thing that president obama did with race to the top is have administrative guidelines that say you need buy-in from union locals for us to like your proposal at the state level. so the states that actually did win that race to the top money were states that got 100% buy-in from teachers unions. those are not necessary tli most transformative approaches. >> but you do need to have -- look, teachers unions are there for a reason. they know education -- teachers know education. it's okay if you've got teachers unions that want to participate. so you've got teachers unions to buy into proposals -- >> 100%? >> let me finish my sentence. instead of having a wisconsin situation where teachers and the reformers are fighting each other, you've got everybody on the same page. >> it's like colorado, new jersey, and louisiana. louisiana, you have tremendous dramatic gains among kids and the local teachers unions did not support the reform proposals that delivered those gains. i get where you're coming from. but the thing is a lot of these locals are resistant to reforms that have been demonstrated to work. >> why fight where you don't have to? >> well, you have to. sorry. >> this is an issue. whatever side you're on, you sure as heck got to fight. an alarming discovery in the waters off this country's coast. we sent a reporter out front to find what is washing up. and we're getting ready for our very special mysterious guest. i tried weight loss plans... but their shakes aren't always made for people with diabetes. that's why there's glucerna hunger smart shakes. they have carb steady, with carbs that digest slowly to help minimize blood sugar spikes. and they have six grams of sugars. with fifteen grams of protein to help manage hunger... look who's getting smart about her weight. 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