Facebook being sued, accused of misleading investors
Facebook stock has been on the market for less than a week and the company is already facing a lawsuit.
Three investors are suing Facebook and its initial public offering underwriters for allegedly hiding unfavorable growth forecasts before the company’s $16 billion IPO last Friday, according to Reuters.
Investors Dennis Palkon and Brian Roffe bought 1,800 and 200 Facebook shares, respectively, at the IPO price, and Jacob Salzmann paid more than $123,000 on Friday for 2,961 shares at an average $41.77 each.
They allege that Facebook told their underwriters to reduce their 2012 performance estimates because more users are using the mobile apps, which do not generate advertising revenue, and left some investors out of the loop while sharing the data with preferred investors. The investors say they received a “false and misleading” registration statement and prospectus, according to ABC.
Law firm Robbins Geller Rudman & Dowd filed the class-action suit Wednesday in a federal court in Manhattan. The suit is against against chief underwriter Morgan Stanley, as well as Facebook’s board, which includes CEO Mark Zuckerberg and CFO David Ebersman, according to ABC. Reuters says Goldman Sachs Group is another defendant.
“The main underwriters in the middle of the road show reduced their estimates and didn’t tell everyone,” Samuel Rudman, a partner at Robbins Geller Rudman & Dowd, told Reuters. “I don’t think any investor in Facebook wouldn’t have wanted to know that information.”
The investors are seeking compensation for damages. Facebook denies the accusations.
“We believe the lawsuit is without merit and will defend ourselves vigorously,” Andrew Noyes, a Facebook spokesman, told Reuters.
Another investor filed a lawsuit against Nasdaq on Tuesday, alleging that an exchange operator was negligent. Another investor is suing Facebook from California.