Facebook Hit with Lawsuits Over Hiding Numbers During IPO Roadshow - The UpStream

Facebook Hit with Lawsuits Over Hiding Numbers During IPO Roadshow

posted Friday May 25, 2012 by Nicholas DiMeo

Facebook Hit with Lawsuits Over Hiding Numbers During IPO Roadshow

Last week we asked if Facebook's IPO could be NASDAQ's biggest bust. Our opinion was that it indeed was, and this was before we witnessed the disaster that happened this week. The social network giant was able to walk away from the IPO with $16 billion in its pockets, however the stock price has been tanking since its technically-delayed opening last week. At the time of this article, the price has dropped down below $32, which is $13 down from when it opened a week ago.

Now, we've learned that when Facebook was shopping around for investors this month, the company may not have been completely honest with all of its financial information. Facebook and a list of banks that include Morgan Stanley are being sued by its shareholders, citing that Facebook purposely hid weakened growth forecasts to investors before the IPO.

The suit says that Zuckerberg & Co were responsible for withholding a "severe and pronounced reduction" in the sales outlooks that go along with the company's rise of their mobile app and mobile browser use of the site. This, of course, happening all before their $60 per share valuation just weeks prior to opening on the NASDAQ.

The lawsuit was filed on Wednesday in a Manhattan court and we also found out that another lawsuit was filed against Facebook in California by a different group of investors on Tuesday. From the New York filing,

The value of Facebook common stock has declined substantially and plaintiffs and the class have sustained damages as a result. {Changes were} selectively disclosed by defendants to certain preferred investors rather than to the public generally.

Reports show that market makers already have suffered $100 million in losses due to the disastrous opening. The stock is currently on a path that may not rebound any time soon, with the value of the Facebook being reduced by $2.9 billion in less than a week. We'll keep you posted on what happens with these lawsuits.

Further reading: The inside story: How Facebook panicked and botched its IPO - Venture Beat

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