A US District court dismissed four shareholder lawsuits related to Facebook’s botched IPO, on the grounds that the individual investors behind the cases purchased the company’s stock after the company had already amended IPO filings, including warnings about an unproven ability to monetize its mobile efforts, Reuters reported.
The lawsuit, as well as similar cases still pending, contends that analysts of large underwriting investment banks lowered financial forecasts of Facebook just before its IPO and informed only a small number of clients, and that Facebook failed to make disclosures about weakened revenue growth due to difficulties to monetize a growing mobile platform. US District Judge Robert Sweet dismissed the lawsuits of plaintiffs William Cole, Hal Hubuschman and Linda Levy because they bought their shares on the stock’s opening day after Facebook had already amended its IPO filing.
The plaintiffs do have the option to revise and refile the lawsuits.
Filed by investors on behalf of a corporation, the lawsuits are derivative cases, not class actions taken on behalf of a group of shareholders.
With shares more than 25 percent below Facebook’s opening day price of $38, investors have been left holding the bag following the botched May 18 IPO. Facebook managed to raise $16 billion in the most anticipated IPO since Google went public in 2004.
The plaintiffs had argued that several media outlets reported Facebook had provided analysts with warnings about its mobile efforts, and that information was selectively disclosed to buyers. The judge ruled that the plaintiffs failed to prove such disclosure “significantly altered the total mix of information in the marketplace,” and that Facebook had “repeatedly made express and extensive warnings” about its transition to mobile.
Sweet did rule that a proposed class action against NASDAQ OMX Group Inc. over the IPO would remain in his court. The plaintiff had asked that the case be moved to the New York State Supreme Court where it was filed initially. Facebook lawyers had argued the case belonged in a Delaware court because that is where the company is officially incorporated. Sweet argued that any cases dealing with NASDAQ’s trading system fell under federal jurisdiction because the system follows SEC rules.
The suit is one of 1 cases involving NASDAQ and the IPO. On the day Facebook went public, auction software failed to keep up with the speed of the sale, resulting in delays, botched cancellations and sales. In the case to remain in Sweet’s court, plaintiff Michael Zack issued a cancel order that took an hour and a half to process.