Facebook, Mark Zuckerberg, Morgan Stanley sued in wake of IPO
NEW YORK (AP) - Facebook's fourth day of trading as a public company saw an increase in the company's stock price and shareholder lawsuits related to the social network's botched initial public offering.
Facebook Inc.'s stock climbed $1, or 3.2 percent, to close at $32 on Wednesday. But the gain was only a small reprieve for shareholders. The stock's rocky inaugural trading day Friday was followed by a two-day decline. The stock is still trading nearly 16 percent below its $38 IPO price.
The initial public trading of Facebook's stock was tarnished Friday morning by a half-hour delay, caused by glitches on the Nasdaq Stock Market. It was marred further this week as investors began accusing the banks that arranged the IPO of sharing important information about Facebook's business prospects with some clients and not others.
Several shareholders who bought stock in the IPO have filed lawsuits against Facebook, its executives and Morgan Stanley, the IPO's lead underwriter. At question is whether analysts at the big underwriter investment banks cut their second-quarter and full-year forecasts for Facebook just before the IPO, and told only a handful of clients about it.
One suit, filed in U.S. District Court in New York, claims Facebook's IPO documents contained untrue statements and omitted important facts, such as a "severe reduction in revenue growth" that Facebook was experiencing at the time of the offering. The suit's three plaintiffs, who bought Facebook stock on its first day of trading May 18, claim they were damaged in the process.
Morgan Stanley declined to comment. Facebook said the lawsuit is without merit.
Another lawsuit, filed in San Mateo County Superior Court in California, holds Facebook and underwriters liable, claiming that Facebook's IPO documents misled investors. Both suits seek class action status on behalf of investors who bought Facebook stock on Friday and lost money.
"No one gets it perfect, as far as saying what the financial results are," said Anthony Michael Sabino, professor at John's University's Peter J. Tobin College of Business. The bottom line, he added, is whether Facebook or the underwriter had material information about Facebook's finances that was not disclosed publicly.
"At this moment, it's still too early to say," he said. "We don't know enough, but this could turn out to be an issue."
What is known is that beginning in March, Facebook began meeting with analysts at the underwriting firms. The gatherings are a customary part of the IPO process and are designed to help analysts understand the company's business so they can make accurate financial projections.
On May 9, day-three of Facebook's pre-IPO roadshow to meet with prospective investors, the company filed an amended IPO document that said its mobile users were growing faster than revenue. According to a person familiar with the matter, Facebook then had another meeting with analysts and told them that based on the new information in the filings, the analysts' forecasts should be at the low end of the range that the company gave them in April. The person spoke on the condition of anonymity because they were not publicly authorized to discuss the matter.
Adding to the day's events, Facebook was in talks with the New York Stock Exchange to move its stock from the Nasdaq Stock Market after the botched offering, according to a person familiar with the matter.
The person spoke on the condition of anonymity because they were not authorized to speak publicly. The news of the talks was first reported by Reuters.
NYSE spokesman Rich Adamonis said: "There have been no discussions with Facebook regarding switching their listing in light of the events of the last week, nor do we think a discussion along those lines would be appropriate at this time."
A Nasdaq spokesman declined to comment.