25th May, 2012
Facebook shareholders have sued the social network, CEO Mark Zuckerberg, and a number of banks, alleging that crucial information was concealed ahead of Facebook’s IPO.
The lawsuit, filed in the US District Court in Manhattan this morning, charges the defendants with failing to disclose in the critical days leading up to Friday’s initial public offering “a severe and pronounced reduction” in forecasts for Facebook’s revenue growth, as users more and more access Facebook through mobile devices, according to Reuters, which cited a law firm for the plaintiffs. (The case: Brian Roffe Profit Sharing Plan v. Facebook, 12-04081.)
Earlier this month, Facebook updated its filings with the Securities and Exchange Commission to say that the shift to smartphones and other mobile gadgets is cutting into the prices it can set for advertisers, which would in turn hurt the company’s revenue. In March, the social network had 488 million monthly average unique users of its mobile products, out of a total of just over 900 million registered users.
The plaintiffs charge that the changes to the forecast by several underwriters of the IPO were only “selectively disclosed” to a small group of preferred investors and not to the investment community at large. “The value of Facebook common stock has declined substantially and plaintiffs and the class have sustained damages as a result,” the complaint says.
Facebook’s stock opened Friday, priced at $38 and, aside from a slight uptick right at the start, has been trading lower since then. It closed at $31 last night. In early trading today, shares were up better than 3 percent, even with word of the lawsuit, and at the end of the day, that’s where they closed, at $32 even.
In response to the legal action, a Facebook spokesperson said: “We believe the lawsuit is without merit and will defend ourselves vigorously.”
—Henry Ojelu