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Lawsuit Filed Against Facebook And Zuckerberg Over IPO

While Facebook’s IPO was quite eventful in a lot of ways, it is now coming to light that all may not have gone as well as it seemed. A lawsuit has now been filed against Facebook as well as its CEO, Mark Zuckerberg, for concealing important information regarding company’s revenue forecasts from investors at large.


A number of shareholders have filed the lawsuit as a collective action. Not only Facebook but the banks involved in the IPO are also being sued in this case.

The main contention of the investors who are involved in this lawsuit is that Facebook knew, well ahead of the IPO, that is will soon experience its users shift from the web usage to Facebook usage through mobile devices and apps. And across the mobile platform, Facebook’s revenue stream is quite weak and still needs to be developed.

So Facebook did know its revenue will dip in the coming days. Also, it made this risk explicit to only a few select investors but didn’t explain it well enough to most of the investors at large. The inevitable result was that many investors went ahead with buying the stock without adequately knowing the risk involved.

This, the investors allege, was very wrong of Facebook and thus they have brought forth a lawsuit. Samuel Rudman, who brought the lawsuit, said, “The main underwriters in the middle of the road show reduced their estimates and didn’t tell everyone. I don’t think any investor in Facebook wouldn’t have wanted to know that information.”

The issue is, by no means, a small one since the chairman of the Senate Banking Subcommittee on Financial Institutions and Consumer Protection has also express his concern over it. He stated, “Effective capital markets require transparency and accountability, not one set of rules for insiders and another for the rest of us. There’s a lot that we don’t know about this IPO but a lot that we do. We know that the SEC must fully investigate and take appropriate action if it discovers any violations.”

The matter will, no doubt, be investigated by the relevant authorities. Although Facebook and the involved banks are of the view that they complied with all the regulations during the IPO, the authorities will determine whether or not that is true.

Source: Reuters

Courtesy: CNET

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