Facebook struggles as lawsuits loom
Facebook's聽fourth day of trading as public company brought shareholder lawsuits, and an increase in the company's stock price as the fallout continued from the social network's botched initial public offering.
Facebook聽Inc.'s stock climbed $1, or 3.2 percent, to close at $32 on Wednesday.
The gain was only a small reprieve for shareholders. The stock's rocky inaugural trading day Friday was followed by a two-day decline. The stock is still trading nearly 16 percent below its $38 IPO price.
The IPO was tarnished Friday morning by a half-hour delay in the trading of聽Facebook's聽stock, caused by glitches on the Nasdaq Stock Market. It was marred further this week as investors began accusing the banks that arranged the IPO of sharing important information about聽Facebook's聽business prospects with a select group of clients.
Several shareholders who bought stock in the IPO have filed lawsuits against聽Facebook, its executives and Morgan Stanley, the IPO's lead underwriter. At question is whether analysts at the big underwriter investment banks cut their second-quarter and full-year forecasts for聽Facebook聽just before the IPO, and told only a handful of clients about it.
One suit, filed in U.S. District Court in New York, claims聽Facebook's聽IPO documents contained untrue statements and omitted important facts, such as a "severe reduction in revenue growth" that聽Facebook聽was experiencing at the time of the offering. The suit's three plaintiffs, who bought聽Facebook聽stock on its first day of trading May 18, claim they were damaged in the process.
Morgan Stanley declined to comment.聽Facebook聽said the lawsuit is without merit.
Another lawsuit, filed in San Mateo County Superior Court in California, holds聽Facebook聽and underwriters liable, claiming that聽Facebook's聽IPO documents misled investors. Both suits seek class action status on behalf of investors who bought聽Facebook聽stock on Friday and lost money.
"No one gets it perfect, as far as saying what the financial results are," said Anthony Michael Sabino, professor at John's University's Peter J. Tobin College of Business. The bottom line, he added, is whether聽Facebook聽or the underwriter had material information about聽Facebook's聽finances that was not disclosed publicly.
"At this moment, it's still too early to say," he said. "We don't know enough, but this could turn out to be an issue."
Adding to the day's events,聽Facebook聽was in talks with the New York Stock Exchange to move its stock from the Nasdaq Stock Market after the botched offering, according to a person familiar with the matter.
The person spoke on the condition of anonymity because they were not authorized to speak publicly. The news of the talks was first reported by Reuters.
NYSE spokesman Rich Adamonis said: "There have been no discussions with聽Facebook聽regarding switching their listing in light of the events of the last week, nor do we think a discussion along those lines would be appropriate at this time."
A Nasdaq spokesman declined to comment.
