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Shareholders Sue Zuckerberg and Facebook: Un-friendly and Un-friendlier

Shareholders Sue Zuckerberg and Facebook: Un-friendly and Un-friendlier

The party is really over for Facebook. Today, not even a week after Facebook’s IPO offering last Friday, shareholders are suing the company and CEO Mark Zuckerberg, alleging that critical information was withheld from them before the company’s widely anticipated IPO, the biggest ever for a technology company.

Morgan Stanley, the lead underwriter for the IPO, has been subpoenaed by the Massachusetts securities division, over the firm’s communications with its clients. Both the US Securities and Exchange Commission and the Financial Industry Regulatory Authority (FINRA) may review Facebook’s offering.

The Facebook shareholders’ suit (Brian Roffe Profit Sharing Plan v. Facebook, 12-04081) was filed on Wednesday morning in US District Court in Manhattan. According to Reuters, Zuckerberg and Facebok are charged with concealing from investors “a severe and pronounced reduction” in revenue growth forecasts, due to users increasingly accessing the social media site via mobile apps:

…shareholders said research analysts at several underwriters had lowered their business forecasts for Facebook during the IPO process, but that these changes were “selectively disclosed by defendants to certain preferred investors” rather than to the public generally.

“The value of Facebook common stock has declined substantially and plaintiffs and the class have sustained damages as a result,” the complaint said.

According to CNET, there were 488 million monthly average unique users of Facebook in March. Facebook has 900 million registered users so that means over half of its members used the site via a mobile device, on which (due to its smaller size) it is simply harder to push more ads and monetize users.

Facebook’s share price opened at $38 on Friday. It fell over 18 percent on Tuesday; in early trading on Wednesday, it went  back up about 3 percent, to $32.

In trying to piece together how Facebook has gone from being fêted to falling very, very far from grace, the Wall Street Journal asks whether Chief Financial Officer David Ebersman’s decision to increase the number of shares the company would offer by 25% was a misstep that “may have doomed any real chance the social-networking company had that its stock would jump on its first day of trading—a hallmark of successful IPOs.” CNET cites a report (based on information from an unnamed source) from “well-known Wall Street watcher Henry Blodget,” who “posits that a Facebook executive was responsible for telling institutional investors, but not smaller investors, about the reduction in revenue estimates.”

Maryland investor Philip Goldberg has also filed a potential class-action suit against the Nasdaq stock exchange, contending that investors lost money due to technical problems which delayed Facebook’s market debut by a half hour.

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27 comments

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1:50PM PDT on May 31, 2012

Man, I'd wished I had had the money to bet against this idiocy! Before the offering was even open, so many facts came to light.
That the only product was the members themselves, that these members almost never hit on the ads, that the original partner was ditching the country, etc.
Anyone who laid out a nickle was a fool! OF COURSE it was over-priced and doomed to go Down! OF COURSE Facebook is a fad like its predecessors and has peaked and is now on the downhill.
Never underestimate the money to be made upon the foolishness of the American People.
(What's really going to piss me off is if and when I find out my husband's 401K invested in that shit stock!)

6:00PM PDT on May 25, 2012

Did anyone, who is not wealthy and in on the gambit, expect not to get screwed? Wake up. IPO's benefit the biggies not the small investors. If we could only hear ten percent of what happens behind closed doors we'd shit!

10:59PM PDT on May 24, 2012

interesting...

6:00PM PDT on May 24, 2012

YOU REP WHAT YOU SO !!

1:52PM PDT on May 24, 2012

once again the money men try and take the small investors by scamming them - but if you gamble with other peoples lives you don't get much sympathy from me. and I wouldn't touch facebook as an investor or a user with a barge pole.

1:16PM PDT on May 24, 2012

FB started as a personal place to talk and share with friends and family.... but it never felt good tome to try it.
There wasn't any privacy. They lied to get to follow people to get more advertising money. and they let the Government agencies get it to it. Social places like FB give the government access for facial recognition. People post their pictures and those of friends and family. There are millions of pictures of people on them. Lots of faces for the government.

1:11PM PDT on May 24, 2012

FB started as a personal place to talk and share with friends and family.... but it never felt good tome to try it.
There wasn't any privacy. They lied to get to follow people to get more advertising money. and they let the Government agencies get it to it. Social places like FB give the government access for facial recognition. People post their pictures and those of friends and family. There are millions of pictures of people on them. Lots of faces for the government.

11:59AM PDT on May 24, 2012

HA! Good! Too bad, so sad!
To me, Facebook is just an invitation to hackers! Stupid!

11:44AM PDT on May 24, 2012

Robert W. - Facebook makes a ton of money off of advertising. In fact, they have gone so far as to accuse those who use Ad-Block Plus of "stealing" Facebook because they don't look at and click on ads.
I don't understand how it works either, I just know that it does.

11:08AM PDT on May 24, 2012

Well, somebody made some money...it did initially go up to 45 before it dropped. Morgan Stanley actually bet against it. I hope this helps expose the market for what it really is--a huge casino of greed meant for only "those in the know" to profit.

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