Facebook lawsuits launched

Facebook CEO Mark Zuckerberg. Photo / AP
Facebook CEO Mark Zuckerberg. Photo / AP

Lawsuits are piling up against Facebook, its underwriters and the Nasdaq exchange as angry investors sought to recover losses from the company's flop US$16 billion IPO.

At least four lawsuits had been filed claiming the company and the lead dealers of its shares had withheld crucial information from smaller investors.

The Massachusetts state government issued a subpoena for the lead underwriter, Morgan Stanley, over how it shared information ahead of the massive share sale.

And one investor sued the Nasdaq OMX exchange for damages resulting from the huge computer glitches that stalled or prevented the execution of orders on millions of shares after the shares hit the market Friday.

The lawsuits alleged that Facebook, company executives and the underwriters of the IPO violated securities laws by issuing "false and misleading" information in the official documents before the share sale.

They "failed to disclose that during the IPO roadshow, the lead underwriters...

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," said Glancy Binkow & Goldberg in its suit.

Facebook went public Friday, selling 421 million shares to raise $16 billion in the country's second-largest IPO ever.

But the shares plunged 18 per cent over the first three trading sessions, driving allegations that large institutional investors had received privileged analyses that drove them to dump the shares, while small investors paid the price.

"The Facebook debacle is coming off as an insult to individual investors. It looks like the worst of Wall Street hype with a dose of chicanery to boot," said Dick Green at Briefing.com.

"Insiders certainly look like the winners and individual investors the losers."

The shares rebounded slightly in morning trade Wednesday, climbing 2.1 per cent to $31.66, but still well below the $38 IPO price that investors paid to score big gains in the market debut of the world's leading social network.

Some of the suits were class actions announced by law firms which were still seeking to collect support from investors willing to sign on to the actions.

Legal firms in the United States frequently file such class-action lawsuits even as they seek plaintiffs; often competing suits are ultimately combined into one.

One Maryland investor, Phillip Goldberg, sued Nasdaq in the New York District Court, saying he lost money when the exchange failed to promptly and accurately execute his orders to buy and sell Facebook stock on Friday.

"Orders placed by investors seeking to purchase Facebook shares during the first trading day often took hours to execute," the suit said.

Goldberg's suit also seeks class-action status, citing media accounts of other investors having the same problems.

Nasdaq did not comment on the suit.

Yesterday Morgan Stanley said it had followed all appropriate procedures in the IPO, and denied doing anything wrong.

"In response to the information about business trends, a significant number of research analysts in the syndicate who were participating in investor education reduced their earnings views to reflect their estimate of the impact of the new information," the bank said in a statement.

"These revised views were taken into account in the pricing of the IPO.

Regulators were reported to be examining what happened, but there was no confirmation of any official probe.

There was little information on how regulators viewed the episode.

"If true, the allegations are a matter of regulatory concern to FINRA and the SEC," Rick Ketchum, the chief executive of the Financial Industry Regulatory Authority, said in a statement.


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