Investor’s Rights: Facebook IPO and Class Action Securities Lawsuit
by: Richard E. Shevitz, Attorney
Facebook has certainly garnered a lot of attention over its initial public offering (IPO) that took place on May 18, 2012. Many stories in the media have highlighted the $16 billion that the company was able to raise while other stories focused on the wealth accumulated by CEO Mark Zuckerberg and the rockstar Bono.
At issue currently is the value of the stock, which has fallen over 18% in its first three days of trading. There has been much speculation as to what information was known and made available to institutional investors as well as the investing public prior to the IPO. Reports are now surfacing from Reuters regarding an amended IPO prospectus that was filed with the SEC in early May.
Underwriting analysts from Morgan Stanley, JP Morgan, and Goldman Sachs lowered their estimates for the value of the stock during the IPO meetings that took place throughout the month of May. It has been alleged that these analysts notified some institutional investors but not the general investing public.
The price for Facebook stock opened at $42. Over the course of the day, the stock price fluctuated but remained over the initial price of $38 by the closing bell of the NASDAQ. Stock market analysts reporting on the trading activity indicated that the stock may have been overhyped. The lowest price the stock has reached so far in trading was $31.
Individual investors have come forward to bring a class action against the officers and directors of Facebook as well as the underwriters of the IPO for violating federal securities laws. A securities class action can be brought against corporate executives who conceal or fail to disclose material information that impact shareholder value. The complaint alleges that the IPO Registration Statement and Prospectus were negligently prepared and did not disclose material information about Facebook’s business, operations, and prospects.