Thursday, May 24, 2012

Shareholders sue Facebook for withholding pre-IPO information

Once Facebook shares started tumbling down immediately after launch, many shareholders questioned the reason behind one of the most troubled IPO launches in history. The main reasons being pointed out are the technical glitches by NASDAQ themselves wherein Facebook shares could not be traded for some time on the day of launch. Then came the inflated price from a previous $28 to $34 per share to the actual launch price of $38. Last but not least, investors soon questioned the actual value of Facebook Inc. being $100 billion because of how poorly their current business profits from their massive user base.

Yesterday a class-action lawsuit was filed in the US District Court of Manhattan against Facebook’s CEO Mark Zuckerberg, JPMorgan Chase, Bank of America, Barclays Plc and Goldman Sachs Group for hiding ”a severe and pronounced reduction” in forecast revenue. Furthermore bank underwriters were told to ”materially lower” their forecasts for Facebook after a May 9th prospectus told investors that most of their user base is moving to mobile platforms, where they earn a very small revenue stream.

The main underwriters in the middle of the road show reduced their estimates and didn’t tell everyone,” said Samuel Rudman, a partner at Robbins Geller Rudman & Dowd, which brought the lawsuit on Wednesday. I don’t think any investor in Facebook wouldn’t have wanted to know that information,” he told Reuters.

If Facebook told analysts to materially lower their forecasts, it should have told the entire market,” said Antony Page, a professor at the Indiana University Robert H. McKinney School of Law. We need to know what exactly was said to the analysts, and determine how different Facebook’s public story was from its private story.”

The handling of Facebook’s IPO is being looked into by the US Securities & Exchange Commission, the US Senate Banking Committee and the Financial Industry Regulatory Authority.

Andrew Noyes, a Facebook spokesman, said: We believe the lawsuit is without merit and will defend ourselves vigorously.”

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