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 In a decision made public on Wednesday, U.S. District Judge Robert
Sweet in Manhattan said investors could pursue claims that Facebook
should have prior to its May 2012 IPO disclosed internal projections
on how increased mobile usage and product decisions might reduce
future revenue.
"The company's purported risk warnings misleadingly represented that
this revenue cut was merely possible when, in fact, it had already
materialized," Sweet wrote in his 83-page decision. "Plaintiffs have
sufficiently pleaded material misrepresentation(s) that could have
and did mislead investors regarding the company's future and current
revenues."
In a statement, Facebook said: "We continue to believe this suit
lacks merit and look forward to a full airing of the facts."
Facebook went public at $38 per share. The Menlo Park,
California-based company's share price rose as high as $45 on May
18, 2012, its first day of trading, but quickly fell below the
offering price and stayed there for more than a year.
Investors including pension funds in Arkansas, California and North
Carolina claimed that Facebook negligently concealed material
information from its IPO registration statement that it had provided
to its underwriters' analysts.
They sought damages resulting from their having sold or holding onto
the shares as they fell below the IPO price, bottoming at $17.55 on
September 4, 2012.
The lawsuit does not allege fraud. More than 40 defendants were
sued, including Facebook Chief Operating Officer Sheryl Sandberg,
lead underwriter Morgan Stanley, Goldman Sachs Group Inc and
JPMorgan Chase & Co.
In Wednesday trading, Facebook shares closed up 71 cents at $55.57.
Facebook is expected to join the Standard & Poor's 500 index after
the close of trading on Friday.
FACEBOOK: LAWSUIT LACKS MERIT
In court papers, the defendants had argued that Facebook had no
obligation to make the requested disclosures, which they called
immaterial, and that Facebook's actual results exceeded original
projections.
They added that the U.S. Securities and Exchange Commission and
other courts have said revenue projections need not be disclosed
before an IPO because they are "inherently speculative and
unreliable."
Morgan Stanley spokeswoman Mary Claire Delaney declined to comment.
The lead plaintiffs are represented by the law firms Bernstein
Litowitz Berger & Grossmann, and Labaton Sucharow.
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Both firms "are quite pleased with the thorough and detailed opinion
by the court," said Thomas Dubbs, a Labaton Sucharow partner, in a
phone interview. "We look forward to prosecuting this action
vigorously."
Dubbs said U.S. securities laws allow damages to be pursued by IPO
investors who sold shares at a loss, as well as by investors who
held on while the share price remained below what it would have been
absent the alleged violations.
Zuckerberg, 29, founded Facebook about a decade ago. Forbes magazine
said he was worth $19 billion in September.
Sweet oversees litigation arising from the IPO, and the investor
case combined 30 lawsuits brought around the country.
On Monday, the judge issued a decision that investors could also
pursue claims accusing Nasdaq OMX Group Inc of concealing technology
problems that led to difficulties in processing trades on Facebook's
first day of trading.
He dismissed claims over Nasdaq's decision not to halt the IPO or
cancel trades.
Sweet's decisions are dated December 11 but were not made public for
several days.
The case is In re Facebook Inc IPO Securities and Derivative
Litigation, U.S. District Court, Southern District of New York, No.
12-md-02389.
(Reporting by Jonathan Stempel in New
York; additional reporting by Alexei Oreskovic; editing by Gerald E.
McCormick, Jeffrey Benkoe and Bernard Orr)
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