Facebook Inc (NASDAQ:FB) Investor Files Class Action Lawsuit Over Alleged Securities Laws Violations In IPO Against Facebook, Inc. And Underwriters
May 22, 2012 (Shareholders Foundation) -- An investor in NASDAQ:FB filed a lawsuit over alleged securities laws violations by Facebook and certain underwriters of the company’s IPO.
The lawsuit was filed on behalf of all persons or entities who purchased the securities of Facebook Inc (NASDAQ:FB) pursuant and/or traceable to the Registration Statement and Prospectus issued in connection with Facebook's IPO (including investors who purchased shares through May 22, 2012). The plaintiff alleges, among others, that the offering materials provided to potential investors were negligently prepared and failed to disclose material information about Facebook’s business, operations and prospects, in violation of federal securities laws.
Facebook Inc went public on May 18, 2012 with an IPO share price of $38 but it popped to a high of $42.025 per share. Facebook received net proceeds of approximately $6.7 billion and the selling stockholders received approximately $9 billion.
However NASDAQ:FB shares closed on Friday at $38.07 per share.
On May 22, 2012, reports said the three banks, Morgan Stanley, Goldman Sachs, and JPMorgan, who will split about $176 million for managing the social-networking company’s initial public offering, all downgraded their earnings forecasts for Facebook Inc while it was still conducting its pre-IPO roadshow. A revised version that was released during the IPO roadshow sometime last week revealed huge revenue losses for Facebook and projected into late 2012. A former Merrill Lynch analyst said he's never heard of such thing happening before.
The plaintiff claims that Facebook Inc, certain of its executive officers and directors and the underwriters of the IPO allegedly failed to disclose that during the IPO roadshow, the lead underwriters, including Morgan Stanley & Co. LLC, J.P. Morgan Securities LLC, and Goldman, Sachs & Co., cut their earnings forecasts and that news of the estimate cut was passed on only to a handful of large investor clients, not to the public.
Two top U.S. financial regulators are reportedly reviewing the initial public offering of Facebook.
The U.S. Securities and Exchange Commission Chairman Mary Schapiro reportedly said to reporters that they would be looking into problems surrounding the initial public offering. The chairman of the Financial Industry Regulatory Authority reportedly said that the allegations are very serious and will be reviewed.
Following the IPO of Facebook the NASDAQ reportedly set aside money to compensate customers for issues with trading orders. Trading in Facebook shares on Friday was delayed by 30 minutes and left many investors in the dark about the status of their orders for more than two hours. A NASDAQ Stock Market official reportedly told customers that it would have pulled the plug on Facebook's IPO had it known the full extent of the technical problems that plagued its systems.
On Monday, May 21, 2012 NASDAQ:FB stocks fell to a close of$34.06 per share and dropped on Tuesday to a close of $31.00 per share.
One article said Facebook’s IPO is among the worst big U.S. IPO in 5 years.