IPO Haunts Facebook With More Lawsuits


As we have reported in multiple articles, Facebook Inc (NASDAQ:FB) is facing heat from a number of lawsuits in courts. Leading the pack are the disgruntled investors that incurred losses from the botched IPO in May 2012. WSJ reports that as many as 50 claims have been filed against the social media giant. The defendants in these claims include Facebook Inc (NASDAQ:FB), NASDAQ OMX Group, Inc. (NASDAQ:NDAQ), and the IPO’s underwriters, i.e. Morgan Stanley (NYSE:MS). Now, a new batch of cases is expected to be filed when the Facebook investors will take the brokerage firms to court for advising on buying the shares of the company. Settlement in these arbitration claims are quicker than the securities class action claims which can extend over years.

IPO Haunts Facebook With More Lawsuits

Legal experts on these kind of class-action suits think that while the recovery of losses from such IPOs is sketchy, the plaintiffs do have a valid claim, when we see that the value of FB stock has plummeted to just $20 in less than six months. Facebook shares capitalize just below $43 billion, which is $38 billion less than the original. Experts believe that these lawsuits settle on the payment of a mere 2-3 percent of the original claim, while more than half of them are not even entertained by the courts.

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The crux of the all legal complaints against Facebook Inc (NASDAQ:FB), and its star underwriter Morgan Stanley (NYSE:MS), is that investors were kept in dark about the limitations that the company was facing as it was transitioning to the mobile platform. Facebook Inc (NASDAQ:FB) fires back by saying that the lawsuits are frivolous, as the company updated the stock-sale document with clear warnings about the issues with the mobile technology. Legal analysts think that as far as the protocol was concerned, Facebook followed it. Morgan Stanley’s spokesperson made it clear that Facebook and its underwriter made every necessary issue public before the IPO. He said that due to the update in Facebook’s pre-IPO sale document, many earnings and stock analysts reduced their estimates and ratings of the stock. Hence, any issues with Facebook’s mobile platform were widely publicized and duely interpreted in analyst ratings.

NASDAQ OMX Group, Inc. (NASDAQ:NDAQ) has previously agreed to pay a sum of $62 million to settle the losses that arose due to glitches in its technology, but it denies that all losses were due to problems with Nasdaq’s network. According to Stanford’s database, 30 civil suits and 29 out of 53 securities class action suits name Facebook Inc (NASDAQ:FB) as defendant.


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