Zuckerberg, banks must face lawsuit over Facebook IPO
NEW YORK — Facebook Chief Executive Mark Zuckerberg and dozens of banks must face a lawsuit accusing the social media company of misleading investors about its health before its US$16 billion (S$20.2 billion) initial public offering.
In a decision made public on Wednesday, United States District Judge Robert Sweet in Manhattan said investors could pursue claims that Facebook should have, prior to its May 2012 IPO, disclosed internal projections on how increased mobile usage and product decisions might reduce future revenue.
“The company’s purported risk warnings misleadingly represented that this revenue cut was merely possible when, in fact, it had already materialised,” Mr Sweet wrote in his 83-page decision.
“Plaintiffs have sufficiently pleaded material misrepresentation(s) that could have and did mislead investors regarding the company’s future and current revenues.”
In a statement, Facebook said: “We continue to believe this suit lacks merit and look forward to a full airing of the facts.”
The social media firm went public at US$38 per share. Its share price rose as high as US$45 on May 18 last year — its first day of trading — but quickly fell below the offering price and stayed there for more than a year.
Investors, including pension funds in Arkansas, California and North Carolina, claimed Facebook negligently concealed material information from its IPO registration statement that it had provided to its underwriters’ analysts.
They sought damages resulting from having sold or holding on to the shares as they fell below the IPO price, bottoming at US$17.55 on Sept 4 last year.
The lawsuit does not allege fraud. More than 40 defendants were sued, including Facebook Chief Operating Officer Sheryl Sandberg, lead underwriter Morgan Stanley, Goldman Sachs Group and JPMorgan Chase.
In court papers, the defendants had argued that Facebook had no obligation to make the requested disclosures, which they called immaterial, and that the company’s actual results exceeded original projections.