The fallout from Facebook’s messy initial public offering has widened with shareholders suing the social network and its bankers.
Facebook’s listing, envisioned as a crowning moment for an eight-year-old company that has become a business and cultural phenomenon, has instead turned into a legal and public relations fiasco for the company and its lead underwriter, Morgan Stanley.
Serious trading glitches interfered with the stock’s opening last Friday, and subsequent revelations that analysts had quietly reduced their revenue forecasts prior to the IPO have led to accusations of selective disclosure of material information. The shares closed at $32 yesterday, 15% below the IPO price.
The main underwriters in the middle of the roadshow reduced their estimates and didn’t tell everyone
The lawsuit is seeking class-action status and alleges that defendants – including Facebook, its chief executive Mark Zuckerberg, Morgan Stanley, Goldman Sachs and JPMorgan Chase – concealed “a severe and pronounced reduction” in revenue growth forecasts resulting from greater use of Facebook’s app or website through mobile devices.
It also accused Facebook of telling its bank underwriters to “materially lower” their forecasts for the company. The lawsuit said the underwriters disclosed the lowered forecasts to “preferred” investors only.
“The main underwriters in the middle of the roadshow reduced their estimates and didn’t tell everyone,” said Samuel Rudman, a partner at Robbins Geller Rudman & Dowd, which brought the lawsuit. The firm is among the leading securities class actions firms in the country.
“I don’t think any investor in Facebook wouldn’t have wanted to know that information.”
Andrew Noyes, a Facebook spokesman, said: “We believe the lawsuit is without merit and will defend ourselves vigorously.”
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