One of the most discussed topics in the business and investment world this past year has been the Facebook IPO. Facebook was seen as one of the most coveted new stocks, with 421 million shares initially offered at $38 a share. It was less than 72 hours, however, that the stock had dropped to $31 a share and initial investors had lost over $2.5 billion in value. Furthermore, the stock continued to drop over the next several days as information was leaked that accurate financial information about the company was suppressed to everyone except a few selected investors.
Class Action Lawsuit
Shortly after the initial offering, a class-action lawsuit was taken out against Facebook. The defendants names in the suit included founder Mark Zuckerberg, David Ebersman the CFO of Facebook, Merrill Lynch, JP Morgan Securities, Morgan Stanley, Barclay Capital, and Pierce, Fenner, and Smith, Inc.
The lawsuit alleges that Facebook, along with the security companies, failed to disclose information about the reduction in revenue growth that Facebook was experiencing as more people accessed their site through mobile applications instead of through a standard PC. Additionally, the lawsuit states that Facebook disclosed this information to the firms who purposefully left this information out of the prospectus and only verbally informed preferred investors of the declining revenue stream.
In October 2012, the Federal Court system directed that all lawsuits against the Facebook IPO be combined into one mass class-action lawsuit overseen by Manhattan Judge Robert Sweet.
Were Investors Duped?
While nothing at this time has been proven in a court of law, many stock fraud attorneys feel it is easy to assume that the answer is most likely yes. Facebook has not performed nearly as well as anticipated. It is currently trading at around $27 a share, which is $11 less than its opening price.
There has been a lot of news flowing out from the company and people that were involved in the IPO that states that the truth was averted to keep the stock price high, even if there was a possibility of the stock dropping at a later point in time. Many people have lost a great deal of money on the Facebook stock, including pension funds for two states and several pension funds for private organizations.
What People Are Saying
It is easy to believe that the chaos from the Facebook IPO did not escape the attention of various senators and other government officials. There has been much said on Capitol Hill about reviewing the process in which IPO’s are released to the public, to a call for a full investigation of the investment firms that underwrote the stock. At this time, however, it is just mainly talk.
The Securities and Exchange Commission is conducting a full investigation into the matter, and at this time has not released any official statements surrounding Facebook stock or the security firms. They have issued a brief statement about the glitch in the system when Facebook first started trading, but it was just listed as computer failure.
If it is found that Facebook and its underwriters did actively deceive the public, the case will settle quickly. It is, however, the opinion of many, that a simply fine and penalty is not enough punishment for this type of action. Many believe this was fraud at its finest and that criminal charges should be the next course of action.
Georgina Clatworthy is a freelance writer producing topical articles on business and legal subjects. The Facebook lawsuit will highlight the problem of securities abuse. Aggrieved investors should seek advice from stock fraud attorneys, such as Page Perry LLC, an Atlanta based law firm, who have built their reputation representing investors duped by fraudulent and unethical business practices adopted by a percentage of bad brokers and brokerage firms.