Facebook Faces Torrent of IPO Lawsuits

by Matt Klassen on September 27, 2012

As Facebook’s stocks continue to fall, the company’s botched initial public offering has many beleaguered investors (no doubt feeling robbed of their ‘sure thing’) looking for someone to blame. But with not being absolutely sure of who’s fault this whole debacle really is, investors are taking a classic ‘carpet-bomb’ approach to the problem, filing lawsuits against Facebook, its IPO under-writer Morgan Stanley, and the Nasdaq group, the exchange the company went public on.

According to the Wall Street Journal, to date there have about 50 lawsuits filed against anyone and everyone associated with Facebook’s disastrous IPO, with claimants arguing that they were misled throughout the process; being sold Facebook’s advertising success in the traditional PC market while being shielded from Facebook’s struggles in the fast growing mobile space.

But whose fault is all this really? Facebook claims the lawsuits are “without merit,” pointing to the fact that shortly before the company’s IPO the company updated its stock-sale document to include a warning that the mobile-device trend might have an impact on the results, while investors claim information was not adequately disclosed and they were intentionally misled.

Shortly after Facebook’s disastrous May IPO I wrote a piece outlining the potential for fraud in this case, pointing out that there were some that made out of Facebook’s IPO like bandits, while the majority of investors have only seen losses as the company’s stock continues to meteoric fall to earth.

While it remains to be seen whether these lawsuits do have any merit, securities lawyers representing disgruntled Facebook investors say they expect hundreds of arbitration claims to be laid against anyone who pitched the company’s shares, meaning particularly brokers and securities firms. According to the Journal, defendants in the civil lawsuits and arbitration claims could face significant financial exposure, given the fact Facebook’s stock has fallen 47 percent since it first went public.

So are Facebook, Morgan Stanley, NASDAQ, and the investment brokers who championed the stock really to blame in this case? While all these parties need to claim some responsibility in what is an unmitigated disaster, such responsibility may not necessarily come with legal ramifications.

The more digging I do regarding Facebook’s IPO the more it actually seems like this is just a case of bad luck for investors; yes Facebook’s kingdom is nothing more than a illusory house of cards, but as far as I can tell Facebook followed all regulations pertaining to information disclosure, just not all investors got to see it (or cared to see it). While I understand that investors feel robbed, that the great and mighty social network has let them down, as the old saying goes, “them’s the breaks,” particularly for those willing to gamble on an always uncertain market.

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Written by: Matt Klassen. www.digitcom.ca. Follow TheTelecomBlog.com by: RSS, Twitter, Facebook, or YouTube.

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