Facebook Lawsuit by New Shareholders, Days After IPO

Facebook faces a lawsuit by new shareholders in the social networking company, filed less than a week after its IPO.

The shareholders allege that Facebook misled them by filing untrue statements in legal filings with the S.E.C., failed to prevent such statements from being misleading, and did not properly prepare the documents for prospective shareholders.

While another shareholder sued NASDAQ yesterday over the exchange’s acknowledged trading glitches, but this lawsuit specifically targets Facebook, board members, and investment banks.

Other defendants named include investment bank underwriters Morgan Stanley, JP Morgan, Goldman Sachs, Merrill Lynch, and Barclays Capital; in addition to Facebook board members like CEO Mark Zuckerberg, CFO David Ebersman, VC’s Marc Andreessen and Peter Thiel, and Netflix CEO Reed Hastings.

The crux of this latest Facebook lawsuit is that the company allegedly failed to disclose that some investors underwriting the IPO had “reduced” their future revenue projections for Facebook because it had been “experiencing a severe and pronounced reduction in revenue growth” because more people were using mobile devices instead of traditional computers to access the social network.

The shareholders allege that Facebook misrepresented statements in an amended S-1/A Registration Statement filed on May 16, in addition to its Prospectus filed Friday morning May 18, 2012, the day of its initial public offering.

One day after the IPO, the lawsuit contends, news reports began trickling in that Facebook’s lead underwriters at Morgan Stanley, JP Morgan and Goldman Sachs had “all cut their earnings forecasts for the company in the middle of the IPO road show.”

The class action complaint maintains that this information was not disclosed to other investors in documents that Facebook filed with the S.E.C. before the initial public offering.

You can track and see legal filings in the case docket (for free), and read the class-action complaint in the lawsuit below:

Complaint for Violation of Federal Securities Laws (Brian Roffe Profit Sharing Plan, et al. v. Facebook, Inc., et al.)

  • http://www.facebook.com/WyRaven Denise Caskey

    Anybody with a brain would have been able to guess that FB was on the way out and that was why Zuckerberg decided to take it public. Get out while the gettin’ was good and he was still able to make money. Meanwhile, he screwed over hundreds, if not thousands, of shareholders. Whether it was intentional or not doesn’t matter. Although, according to the lawsuit, it would seem that the deception was intentional.