Suits allege Facebook IPO misled investors
Published Wednesday, May 23, 2012 6:11PM EDT
Facebook's relationship status with investors appears to be getting complicated, as a class-action lawsuit has been launched following the social network's hyped initial public offering last week.
Three investors filed suit against Facebook this week, alleging that the company and its underwriters didn't disclose all the financial information leading up to the IPO, which caused a frenzy on Wall Street.
In the suits, the investors claim that Facebook mislead the public and didn't reveal important -- and diminished -- revenue forecasts from financial analysts.
The suit also alleges that the world's most popular social network "selectively disclosed" the revenue forecasts to a select group.
Along with key underwriters, the court documents name Facebook and company CEO Mark Zuckerberg as defendants.
The suit follows heavy criticism of Facebook's IPO, which started with a bang but ended with a whimper on Wall Street last week, as investors watched the hyped stock rise and fall within a single, dramatic day of trading.
The entire IPO and its aftermath are again calling into question the integrity of stock markets, as heavy losses have already been recorded on the stock.
At $38 (all figures U.S.) per share, many critics believed that the stock was overvalued from the get-go, leading to supply and demand problems that coincided with the stock plunging 18 per cent off its initial offering price.
Lead underwriters, including financial heavyweights Morgan Stanley, JPMorgan Chase, Goldman Sachs and Merill Lynch, are also facing big criticism over their work on the Facebook file.
In fact, the suit alleges that the prospectus misled investors, leading to losses of $2.5 billion since Friday.
On Wednesday, Facebook's stock rose a dollar to $32, but was still below the initial $38 offering price.
During heavy trading last Friday, the stock temporarily hit $45 before plunging to $38.23.
In response, a company statement from Facebook said: "We believe the lawsuit is without merit and will defend ourselves vigorously."
Lead underwriter Morgan Stanley offered no comment Wednesday.
With a report from The Associated Press