Facebook Sued by Investors Over IPO
Facebook faced more bad news Wednesday in the wake of its botched initial public offering. Shareholders filed a lawsuit against the social networking company, lead underwriter Morgan Stanley and several other Wall Street banks, alleging that they misled them about Facebook’s revenue projections ahead of the IPO. JPMorgan Chase and Goldman Sachs were also named in the suit, which was filed in U.S. District Court in Manhattan.
Facebook shares closed up 3.2 percent at $32 on Wednesday, down nearly 16 percent from their IPO price of $38. –TEB
The legal action accused the defendants, including Facebook Chief Executive Mark Zuckerberg, of concealing “a severe and pronounced reduction” in revenue growth forecasts resulting from increased use of Facebook’s app or website through mobile devices.
Facebook was also accused in the lawsuit of telling its bank underwriters to “materially lower” forecasts for the company.
“The main underwriters in the middle of the road show reduced their estimates and didn’t tell everyone,” said Samuel Rudman, a partner at Robbins Geller Rudman & Dowd, which brought the lawsuit. “I don’t think any investor in Facebook wouldn’t have wanted to know that information.”
Andrew Noyes, a Facebook spokesman, said: “We believe the lawsuit is without merit and will defend ourselves vigorously.”