Star Silicon Valley analyst felled by Facebook IPO fallout

SAN FRANCISCO (Reuters) - The firing of Citigroup stock analyst Mark Mahaney on Friday in the regulatory fallout from Facebook Inc's initial public offering was greeted with shock and dismay in Silicon Valley, where Mahaney was a well-known and well-liked figure.

"Pretty shocked," was the reaction of Jacob Funds Chief Executive Ryan Jacob, who described Mahaney as one of the most respected financial analysts covering the Internet industry.

"I'd put him at the top. If not at the top, then near the top," said Jacob. "He really knew what to look for."

In addition to firing Mahaney, Citigroup paid a $2 million fine to Massachusetts regulators to settle charges that the bank improperly disclosed research on Facebook ahead of its $16 billion IPO in May.

The settlement agreement said Mahaney failed to supervise a junior analyst who improperly shared Facebook research with the TechCrunch news website. (Settlement agreement: http://r.reuters.com/pyj63t)

The settlement agreement also outlined an incident in which Mahaney failed to get approval before responding to a journalist's questions about Google Inc -- and told a Citigroup compliance staffer that the conversation had not occurred -- even after being warned about unauthorized conversations with the media.

Mahaney declined to comment.

Mahaney got his start in the late 1990s, during the first dot-com boom where he worked at Morgan Stanley for Mary Meeker, one of the star analysts of the time. He went on to work at hedge fund Galleon Group before moving to Citigroup in 2005. Unlike most of his New York-based peers in the analyst world, Mahaney worked in San Francisco's financial district, close to the companies and personalities at the heart of the tech industry.

Earlier this month, Mahaney was named the top Internet analyst for the fifth straight year by Institutional Investor. The review cited fans of Mahaney who praised a "systematic" investment approach that allows him to avoid the "waffling" often evidenced by other analysts.

Mahaney's Buy rating on IAC/InteractiveCorp in April 2011, when the stock traded at $33.32, allowed investors to lock in a 51 percent gain before he downgraded the stock to a Hold at $50.31 a few months later, according to Institutional Investor.

But it wasn't only his stock picks that put him in good stead. He earned kudos for simply being a nice guy.

"He's a kind and thoughtful person and that's evident in the way he deals with people," said Jason Jones of Internet investment firm HighStep Capital. "He's very well liked on Wall Street because of that."

A CAUTIOUS VIEW ON FACEBOOK

Mahaney was only indirectly involved in the incident involving the Facebook research, according to the settlement agreement by Massachusetts regulators released on Friday. But the actions of the junior analyst who worked for him provide an unusual glimpse into the type of behind-the-scenes information trading that regulators are attempting to rein in.

While the Massachusetts regulators did not identify any of the individuals by name, Reuters has learned that the incident involved TechCrunch reporters Josh Constine and Kim-Mai Cutler as well as Citi junior analyst Eric Jacobs.

Jacobs, Constine and Cutler all did not respond to requests for comments.

In early May, shortly before Facebook's IPO, Jacobs sent an email to Cutler and Constine. Constine attended Stanford University at the same time as Jacobs.

Constine, who studied social networks such as Facebook and Twitter for his 2009 Master's degree in cybersociology at Stanford, had a close friendship with Jacobs, according to the settlement agreement.

"I am ramping up coverage on FB and thought you guys might like to see how the street is thinking about it (and our estimates)," Jacobs wrote in the email. The email included an "outline" that Jacobs said would eventually become the firm's 30-40 page initiation report on Facebook.

He also included a "Facebook One Pager" document, which contained confidential, non-public information that Citigroup obtained in order to help begin covering Facebook after the IPO.

Asked by Constine if the information could be published and attributed to an anonymous source, Jacobs responded that "my boss would eat me alive," the agreement said.

A spokeswoman for AOL Inc, which owns TechCrunch, declined to answer questions on the matter, saying only that "We are looking into the matter and have no comment at this time."

Ironically, Mahaney was one of a small group of analysts at the many banks underwriting Facebook's IPO who had cautious views of the richly valued offering. Mahaney initiated coverage of the company with a neutral rating.

Analysts at the top three underwriters on Facebook's IPO - Morgan Stanley, Goldman Sachs and J.P. Morgan - started the stock with overweight or buy recommendations.

Earlier this year, Reuters reported that Facebook had pre-briefed analysts for its underwriters ahead of its IPO, advising them to reduce their profit and revenue forecasts.

Facebook, whose stock was priced at $38 a share in the IPO, closed Friday's regular session at $21.94 and has traded as low as $17.55.

"There were tens of billions of dollars in losses based on hyping the name, a lack of skeptical information and misunderstanding the company," said Max Wolff, chief economist and senior analyst at research firm GreenCrest Capital.

"It's highly unfortunate and darkly ironic that one of the signature regulatory actions from this IPO so far involves punishing analysts for disseminating cautious information about Facebook," he added.

(Editing by Jonathan Weber, Mary Milliken and Lisa Shumaker)

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Lil Wayne released from hospital, thanks fans

NEW YORK (AP) — Lil Wayne is thanking fans who prayed for him while he was hospitalized after a severe migraine and dehydration.

The rapper's management team says he's on "mandated rest." The Blueprint Group said Friday he was released from the hospital treatment and will return to work soon. It says the New Orleans-based rapper appreciates his fans' support and love.

Lil Wayne tweeted Saturday he's "good." He says, "Thanx for all the prayers!"

The 30-year-old multiplatinum performer is working on a follow-up to his last album, last year's "Tha Carter IV."

___

Online:

http://www.lilwayne-online.com

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FDA: Pharmacy tied to outbreak knew of bacteria

WASHINGTON (AP) — Staffers at a pharmacy linked to the deadly meningitis outbreak documented dozens of cases of mold and bacteria growing in rooms that were supposed to be sterile, according to federal health inspectors.

In a preliminary report on conditions at the pharmacy, the Food and Drug Administration said Friday that even when the contamination at New England Compounding Center exceeded the company's own safety levels, there is no evidence that staffers investigated or corrected the problem. The FDA uncovered some four dozen reports of potential contamination in company records, stretching back to January this year.

The report comes from an FDA inspection of the Framingham, Mass.-based company earlier this month after steroid injections made by the company were tied to an outbreak of fungal meningitis. FDA officials confirmed last week that the black fungus found in the company's vials was the same fungus that has sickened 338 people across the U.S., causing 25 deaths.

The New England Compounding Center's lawyer said Friday the pharmacy "will review this report and will continue our cooperation with the FDA."

Compounding pharmacies like NECC traditionally fill special orders placed by doctors for individual patients, turning out a small number of customized formulas each week. They have traditionally been overseen by state pharmacy boards, though the FDA occasionally steps in when major problems arise. Some pharmacies have grown into much larger businesses in the last 20 years, supplying bulk orders of medicines to hospitals that need a steady supply of drugs on hand.

The FDA report provides new details about NECC's conditions, which were first reported by state officials earlier this week. The drug at the center of the investigation is made without preservative, so it's very important that it be made under highly sterile conditions. Compounding pharmacies prepare their medications in clean rooms, which are supposed to be temperature-controlled and air-filtered to maintain sterility.

But FDA inspectors noted that workers at the pharmacy turned off the clean room's air conditioning every night. FDA regulators said that could interfere with the conditions needed to prevent bacterial growth.

Inspectors also say they found a host of potential contaminants in or around the pharmacy's clean rooms, including green and yellow residues, water droplets and standing water from a leaking boiler.

Additionally, inspectors found "greenish yellow discoloration" inside an autoclave, a piece of equipment used to sterilize vials and stoppers. In another supposedly sterile room inspectors found a "dark, hair-like discoloration" along the wall. Elsewhere FDA staff said that dust from a nearby recycling facility appeared to be drifting into the pharmacy's rooftop air-conditioning system.

The FDA on Friday declined to characterize the severity of the problems at NECC, or to speculate on how they may have led to contamination of the products made by the pharmacy. FDA emphasized that the report is based on "initial observations" and that the agency's investigation is ongoing.

The agency also provided new details about the pharmacy's handling of the steroids it recalled last month. The company recalled three lots of steroids made since May that totaled 17,676 single-dose vials of medicine — roughly equivalent to 20 gallons. The shots are mainly used to treat back pain.

According to the agency's report, the pharmacy began shipping vials from the August lot to customers on Aug. 17. That was nearly two weeks before the pharmacy received test results from an outside laboratory confirming the sterility of the drug. When FDA scientists went back and tested the same lot this month, they found contamination in 50 vials.

Outside experts said the report paints a picture of a dysfunctional operation.

"The entire pharmacy was an incubator of bacteria and fungus," said Sarah Sellers, a former FDA officer who left the agency in 2008 after unsuccessfully pushing it to increase regulation of compounding pharmacies. She now consults for drug manufacturers. "The pharmacy knew this through monitoring results, and chose to do nothing."

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Amid dire forecast, Sandy a hurricane again

SHIP BOTTOM, N.J. (AP) — With much of the Eastern Seaboard in the path of a rare behemoth storm, residents of the nation's most densely populated corridor contemplated whether to heed dire warnings of torrential rain, high winds and up to 2 feet of snow.

"You know how many times they tell you, 'This is it, it's really coming and it's really the big one,' and then it turns out not to be?" said Alice Stockton-Rossini as she packed up to leave her home a few hundred yards from the ocean in Ship Bottom, N.J.

"I'm afraid people will tune it out because of all the false alarms before, and the one time you need to take it seriously, you won't. This one might be the one."

Hurricane Sandy — upgraded again Saturday just hours after forecasters said it had weakened to a tropical storm — was barreling north from the Caribbean and was expected to make landfall early Tuesday near the Delaware coast, then hit two winter weather systems as it moves inland, creating a hybrid monster storm.

Even if Sandy loses strength and makes landfall as something less than a hurricane, the combined storm was expected to bring misery to a huge section of the East. An 800-mile wide swath of the country could see 50 mph winds regardless of Sandy's strength.

Experts said the storm could be wider and stronger than Irene, which caused more than $15 billion in damage, and could rival the worst East Coast storm on record. On Saturday morning, forecasters said hurricane-force winds of 75 mph could be felt 100 miles away from the storm's center.

Up and down the coast, people were cautioned to be prepared for days without electricity. Jersey Shore beach towns began issuing voluntary evacuations and protecting boardwalks. Atlantic City casinos made contingency plans to close, and officials advised residents of flood-prone areas to stay with family or be ready to leave. Several governors declared states of emergency. Airlines said to expect cancellations and waived change fees for passengers who want to reschedule.

In North Carolina's Outer Banks, light rain was falling Saturday and winds were building up to a predicted 30 to 50 mph. A steady stream of campers and other vehicles hauling boats were leaving the low-lying islands for the mainland. Residents feared a temporary bridge built after Irene last year poked a new inlet through the island could be washed out again, severing the only road off Hatteras Island.

In Ship Bottom, N.J., Russ Linke was taking no chances Saturday. He and his wife secured the patio furniture, packed the bicycles into the pickup truck and headed off the island.

"I've been here since 1997, and I never even put my barbecue grill away during a storm, but I am taking this one seriously," he said. "They say it might hit here; that's about as serious as it can get."

After Irene left millions without power, utilities were taking no chances and were lining up extra crews and tree-trimmers. Wind threatened to topple power lines, and trees that still have leaves could be weighed down by snow and fall over if the weight becomes too much.

New York City began precautions for an ominous but still uncertain forecast. No decision had been made on whether any of the city's public transportation outlets would be shut, despite predictions that a sudden shift of the storm's path could cause a surge of 3 to 6 feet in the subways.

The subway system was completely shuttered during Irene, the first such shutdown ever for weather-related reasons. Irene largely missed the city, but struck other areas hard.

The storm loomed a little more than a week before Election Day, while several states were heavily involved in campaigning, canvassing and get-out-the-vote efforts. Republican presidential nominee Mitt Romney and Vice President Joe Biden both canceled weekend campaign events in coastal Virginia Beach, Va., though their events in other parts of the states were going on as planned. In Rhode Island, politicians asked supporters to take down yard signs for fear they might turn into projectiles in the storm.

Sandy killed more than 40 people in the Caribbean, wrecked homes and knocked down trees and power lines.

Early Saturday, the storm was about 355 miles (571 kilometers) southeast of Charleston, S.C. Its sustained wind speed was about 75 mph (121 kph).

Sandy was projected to hit the Atlantic Coast early Tuesday. As it turns back to the north and northwest and merges with colder air from a winter system, West Virginia and further west into eastern Ohio and southern Pennsylvania are expected to get snow. Forecasters were looking at the Delaware shore as the spot the storm will turn inland, bringing 10 inches of rain and extreme storm surges, said Louis Uccellini, environmental prediction director for the National Oceanic and Atmospheric Administration.

Up to 2 feet of snow was predicted to fall on West Virginia, with lighter snow in parts of Ohio and Pennsylvania.

Jeff Masters, meteorology director of the forecasting service Weather Underground, said this could be as big, perhaps bigger, than the worst East Coast storm on record, a 1938 New England hurricane that is sometimes known as the Long Island Express, which killed nearly 800 people.

While rains were light Saturday in North Carolina's Outer Banks, winds were building up to a predicted 30 to 50 mph and a steady stream of campers and other vehicles hauling boats or with kayaks strapped to the roof were headed off the low-lying islands to the mainland. Local residents were preparing for power outages lasting days and fearing a temporary bridge built after Hurricane Irene poked a new inlet through the island last year could be washed out again, cutting off the only road out of Hatteras Island.

Retirees Larry and Jean Collier, of Brantford, Ontario, were leaving their beachfront hotel in Kill Devil Hills, N.C., early Saturday and trying to plot their route home knowing they risked driving into a mess.

"I'll try to split (the trip) right down the middle, not too close to Washington, not too far west," Larry Collier said. "The storm has kind of put a wrench in it."

Others were shrugging off dire predictions. Warren Ellis and his 10-foot-long camper were stuck on an uninhabited Outer Banks island on his annual fishing pilgrimage, the conditions too rough Saturday for the ferry to carry him to safer ground.

"We might not get off here until Tuesday or Wednesday, which doesn't hurt my feelings that much because the fishing's going to be really good after this storm. It's always good after a storm," said Ellis, 44, of Ammissville, Va.

___

Dalesio reported from Kill Devil Hills, N.C. Associated Press writers Brock Vergakis in Duck, N.C., Frank Eltman in Freeport, N.Y., George Walsh in Albany, N.Y., Joe Mandak in Pittsburgh, Kathy Matheson in Philadelphia, Seth Borenstein in Washington and Christine Armario in Miami contributed to this report.

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