Facebook Hit With Class Action Lawsuits Following Fubar IPOBy: Drew Bowling - May 24, 2012
Whenever we here at WebProNews have speculated or reported on class action lawsuits filed against Facebook, the nature of those complaints has almost always had to do with the social networking giant’s dubious handling of user privacy. Given the remarkably awful situation that has plagued Facebook since its initial public offering this past Friday, the company has found a new way to attract class action lawsuits: pissing off investors.
Berger & Montague, P.C., a law firm specializing in class action suits, alleges that Facebook, Morgan Stanley & Co. (the lead underwriter for Facebook’s IPO), J.P Morgan, and Goldman Sachs all failed to provide accurate information about Facebook’s decline in earnings growth to all Facebook investors prior to Friday’s IPO. According to a statement from Berger & Montague, while Facebook luminaries were out and about on the road show leading up to the IPO, the company guided the underwriters to materially lower their earnings forecast for 2012, leading each of the underwriters to reduce Facebook’s earnings estimates for the second quarter and full fiscal year 2012.
Individual executives from Facebook were singled out in the suit, as indicated by the case’s extraordinarily long name:
Goldrich Cousins P.C. 401(k) Profit Sharing Plan & Trust, Individually and on Behalf of All Others Similarly Situated v. Facebook, Inc., Mark Zuckerberg, David A. Ebersman, David M. Spillane, Marc L. Andreesen, Erskine B. Bowles, James W. Breyer, Donald E. Graham, Reed Hastings, Peter Thiel, Morgan Stanley & Co. LLC, J.P. Morgan Securities LLC and Goldman Sachs & Co.
This lawsuit joins two (at least) other legal claims that have been filed against Facebook and its underwriters since the underwhelming and financially disastrous IPO. Three investors filed a lawsuit against Facebook for similar reasons in the U.S. District Court for the Southern District of New York in Manhattan, citing that the underwriters only shared the information of Facebook’s decreased earnings growth to a select few investors while leaving out others.
As if the pile-on wasn’t high enough, a second law firm, Robbins Geller Rudman & Dow, also filed a class action law suit against Facebook yesterday for yet again the same reason: Facebook mislead investors by failing to disclose the fact that its revenue growth was slowing. Darren Robbins, a partner in the firm, told the Los Angeles Times that the fallout of Facebook’s IPO is “deeply troubling.”
“The notion that the lead underwriters would contemporaneous with a road show and a filing of the registration statement receive information and thereafter materially reduce revenue projections for the very period the IPO occurred is nothing less than shocking,” Robbins said.
“You’re telling one group of folks and giving them access to one thing while people are putting up more than $15 billion worth of cash,” he said. “There’s a reason why you have multiple investigations.”
When asked for a comment about the lawsuits, a Facebook spokesman indicated that the company intends to stand its ground. “We believe the lawsuit is without merit and will defend ourselves vigorously,” he told WebProNews.
I’d wager a bet – or is that too soon, since we’re talking about Facebook? – that Facebook is really super happy that it hired a law firm that specializes in class action defense all the way back in March.
(This article has been updated from its original copy. It’s been edited to add the comment from Facebook’s spokesperson.)