Facebook (NASDAQ FB) has worse problems than its stock price sinking well below its $38 opening price on its May 18 Initial Public Offering. This week, two class actions — a state-filed suit in California Tuesday and a federal suit in New York today — allege Facebook didn’t tell prospective investors that it had significantly lower revenue projections than what it disclosed in its prospectus.
Facebook reps did not return calls immediately for this story, although it told Reuters today that “the lawsuit is without merit and will defend ourselves vigorously.”
“The substance of both complaints is extremely similar,” Silicon Valley attorney Tom Ewing told TechRepublic. Both refer to anonymously sourced reports from Reuters that claimed that lead underwriters Morgan Stanley and JP Morgan cut the earnings forecast for the company during the IPO roadshow — but never revealed this to other investors.
“If the allegations in the complaints are true, the problem is that Facebook — not the media — should’ve alerted investors to this critical information about projected revenue, which moves markets,” Ewing said. “Again, if the allegations are true, then the underwriters had information that potential investors did not. These lawsuits are first to reveal to the public financial information on Facebook that some bankers allegedly knew beforehand.”
Both law firms are representing investors who purchased the stock at $38 or higher on the first day. At the close of trading, Facebook shares were at $32, 25 percent down from its high of $43 on May 18.
One plaintiff investor in the New York suit purchased 2,961 shares at nearly $41.77 each.
This graphic, from kissmetrics.com, shows ownership in Facebook pre and post its IPO on May 18.
A number of state and federal agencies reportedly also are investigating the matter, including the Securities and Exchange Commission (SEC) and the U.S. Senate Banking committee, as well as a litany of stage agencies.
Both suits are soliciting individuals to join their class actions, which specifically target: CEO Mark Zuckerberg and board members David Ebersman, David Spillane, Marc Andreesen, Erskine Bowles and Jim Bryer (an Accel Partners venture capitalist), Donald Graham, Reed Hastings (CEO, Netflix), Peter Thiel. They both also name the following underwriters of the IPO: Morgan Stanley, JP Morgan, Goldman Sachs, Merrill Lynch, Barclays Capital and others.
Both suits allege violation of securities laws. We’ll update this story as it develops.
Read the entire complaints in both cases in place below.
“The fact that there are so many governmental agencies that are looking at this seriously .. in addition to the two or more suits filed Tuesday and today — indicates that this is more than just the typical phenomenon of investors suing an IPOed company to make a quick buck,” Ewing said.
Here is the California complaint, filed in the California Superior Court for San Mateo County, which is where Facebook is based.
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California Complaint against Facebook (TECHREPUBLIC)