Lawsuits mount over Facebook IPO debacle

Trial lawyers smelled blood as furious investors began filing suits over losses on Facebook's disastrous $16 billion IPO, with billions of dollars possibly at stake in coming litigation.

More than a half-dozen law firms specializing in investor complaints said they were launching class action suits against the social networking giant and its underwriters.

The suits alleged that Facebook, and Morgan Stanley, Goldman Sachs and other big Wall Street banks that distributed the shares withheld from smaller investors crucial forecasts that pointed to weaker growth for Facebook, while sharing the information with big institutional clients.

A separate lawsuit against the Nasdaq exchange said its massive technical problems on the first day of Facebook trade on Friday also resulted in losses to investors.

All told the claims could come to billions: more than $15 billion dollars has been wiped from the company's value since the initial public offering gave it a market capitalization of $104 billion.

Facebook vehemently defended itself in its first public comment since the IPO, as the first suit, from the Brian Roffe Profit Sharing Plan and two other investors, was lodged in the New York District Court.

"We believe the lawsuit is without merit and will defend ourselves vigorously," a Facebook spokesperson said.

The class-action suits all said that US securities laws were violated when the company and its main IPO bankers allegedly provided information to large clients but not others.

They "failed to disclose that during the IPO roadshow, the lead underwriters... cut their earnings forecasts and that news of the estimate cut was passed on only to a handful of large investor clients, not to the public," said law firm Glancy Binkow & Goldberg.

On the same grounds the Massachusetts state government issued a subpoena for the lead underwriter, Morgan Stanley, over how it shared information ahead of the massive share sale.

Morgan Stanley is being blamed for cutting its own internal Facebook earnings forecasts even while supporting the company in increasing the size of the IPO by 25 percent to 421 million shares, and raising the issue price sharply to $38 a share.

Investors had hoped to turn quick and easy profits on the shares when they hit the market Friday, given the lengthy buildup and how previous IPOs by tech giants like Google and LinkedIn rocketed upward.

But the launch flopped, the price barely staying up above the $38 level in the first day of trade and then plunging 18 percent over the next two sessions.

The price rebounded slightly in trade Wednesday, climbing 3.2 percent to $32.00, but remained well below the $38 that the initial IPO investors paid.

The episode cast a dark cloud over what was supposed to be the brightest market opportunity for investors in years and over a company with nearly one billion users but which still faces questions on whether it cares what investors think.

"The Facebook debacle is coming off as an insult to individual investors. It looks like the worst of Wall Street hype with a dose of chicanery to boot," said Dick Green at Briefing.com.

"Insiders certainly look like the winners and individual investors the losers."

On Tuesday Morgan Stanley insisted it followed all appropriate procedures in the IPO, including disseminating the update Facebook filing, the "S1", to all of the company's institutional and retail investors.

"In response to the information about business trends, a significant number of research analysts in the syndicate who were participating in investor education reduced their earnings views to reflect their estimate of the impact of the new information," the banks said in a statement.

As the lawyers took action in the courts, major retail brokers said they were trying to sort out investor complaints of losses due to Nasdaq's inability Friday to process trading orders correctly.

"We understand that Nasdaq is working with federal regulators to determine what, if any, accommodation might be made," Fidelity, the giant retail broker, told its clients, hinting that some compensation for losses might be available.

Regulators were also reported examining what happened with the underwriters, and the banking committee of the US Senate was also informally gathering information on the case.

"If true, the allegations are a matter of regulatory concern to FINRA and the SEC," Rick Ketchum, the chief executive of the Financial Industry Regulatory Authority, said in a statement.

Loading...

Editor’s note:Yahoo Philippines encourages responsible comments that add dimension to the discussion. No bashing or hate speech, please. You can express your opinion without slamming others or making derogatory remarks.

  • US ambassador recovers from knife attack praised by N. Korea
    US ambassador recovers from knife attack praised by N. Korea

    The US ambassador to South Korea, Mark Lippert, was recovering from surgery Thursday after having his face and arm slashed by a knife-wielding activist in an attack applauded by North Korean state media. The United States condemned the "act of violence" which saw the ambassador rushed to hospital where his condition was described as stable after two-and-a-half hours of surgery that included 80 stitches to a deep gash on his right cheek. During the assault, Kim screamed a slogan in favour of …

  • Billionaire finds wreck of WWII ship in Phl
    Billionaire finds wreck of WWII ship in Phl

    Microsoft co-founder Paul Allen says he has found the Japanese Navy’s biggest warship at the bottom of the sea in the Philippines, 70 years after US forces sank it. Allen posted a photo on Twitter on Tuesday of the World War II battleship Musashi’s rusty bow, which bore the Japanese empire’s Chrysanthemum seal. The American billionaire, who has also pursued space exploration, said his luxury yacht and exploration ship, the M/Y Octopus, found the Musashi one kilometer (1.6 miles) deep on the …

  • New Moro rebel group emerges
    New Moro rebel group emerges

    A radical Muslim cleric trained in the Middle East and considered one of the leaders of the Bangsamoro Islamic Freedom Fighters (BIFF) has broken away from the terror group to form his own band of jihadists who are now reportedly providing sanctuary to bomb expert Basit Usman and at least five foreign militants, the military said yesterday. Armed Forces of the Philippines (AFP) spokesman Col. Restituto Padilla, citing reports from the field, said the Justice for Islamic Movement (JIM) was …

  • Ohio mom, boyfriend guilty; child emailed teacher for help

    PORTSMOUTH, Ohio (AP) — A woman and her boyfriend pleaded guilty to raping her young children and were sentenced to prison on Wednesday, a year after one of her daughters emailed a teacher for help and said she and her siblings were being chained to their beds, deprived of food and sexually assaulted. …

  • Sy moves up, Villar enters Forbes list of billionaires
    Sy moves up, Villar enters Forbes list of billionaires

    Eleven Filipinos are included in Forbes’ 2015 list of richest people in the world. Filipino-Chinese tycoon Henry Sy Sr. continues to be the wealthiest man in the Philippines. The 90-year-old SM supermalls, banking and property tycoon ranked 73rd among the world’s richest with an increased net worth of $14.2 billion from $11.4 billion last year. Sy’s net worth was attributed to the continued growth of his SM Investments Corp. and his more recent venture, the City of Dreams Manila resort and …

  • Miriam bucks house arrest for Enrile
    Miriam bucks house arrest for Enrile

    Sen. Miriam Defensor-Santiago believes granting Senate Minority Leader Juan Ponce Enrile house arrest, while former President Gloria Macapagal-Arroyo remains under hospital detention, will violate the equal protection clause of the Constitution. “That’s already a violation of the equal protection of the law,” she said. …

  • World's oldest person wonders about secret to longevity too
    World's oldest person wonders about secret to longevity too

    TOKYO (AP) — The world's oldest person says 117 years doesn't seem like such a long time. …

  • US billionaire says WWII Japanese ship found in Philippines
    US billionaire says WWII Japanese ship found in Philippines

    Microsoft co-founder Paul Allen said Wednesday he had found one of Japan's biggest and most famous battleships on a Philippine seabed, some 70 years after American forces sank it during World War II. Excited historians likened the discovery, if verified, to finding the Titanic, as they hailed the American billionaire for his high-tech mission that apparently succeeded after so many failed search attempts by others. Allen posted photos and video online of parts of what he said was the …

POLL

Should Aquino be held accountable over the Mamasapano operations?

Loading...
Poll Choice Options