Investors Sue Facebook, Mark Zuckerberg and Banks Over IPO
Facebook does not seem so invincible at the moment. Shareholders in the Social Networking giant announced they are filing a lawsuit against the company, majority shareholder and CEO Mark Zuckerberg and various banks including Morgan Stanley. They are claiming that Facebook hid weakened growth forecasts ahead of its $16 billion dollar IPO.
Shareholders are accusing the company and Zuckerberg of concealing from investors during the IPO marketing process “a severe and pronounced reduction” in revenue growth forecasts. The reduction in revenue is a result of increased use of its mobile app or its website on mobile devices. This was concealed during their IPO last week.
The lawsuit was filed in U.S. District Court in Manhattan on Wednesday, according to a law firm for the plaintiffs. On Tuesday a different investor filed his own similar lawsuit against the company in a California court.
In the New York case, shareholders said that research analysts at various banks involved with the underwriting process knew of the reduced growth forecasts, but that these changes were “selectively disclosed by defendants to certain preferred investors” rather than to the public generally.
The complaint said that,
“The value of Facebook common stock has declined substantially and plaintiffs and the class have sustained damages as a result,”
Representatives of Facebook, Morgan Stanley, Zuckerberg and the other banks were contacted but did not wish to comment.
Facebook shares fell 18.4 percent from their $38 IPO price in the first three days of trading, reducing the value of stock sold in the IPO by more than $2.9 billion.