Editor’s note: This article was first published in May 2012. It reports news from 23 May 2012, days after Facebook’s IPO; the share price, the 19% drop and the valuation figures are from that week, and the lawsuits were resolved years later.
Facebook, Goldman Sachs, Morgan Stanley, JPMorgan Chase & Co and other banks that took part in Facebook’s IPO have been sued by investors who say they were misled into buying shares in the social network.
A group of investors has joined forces to bring a class action, claiming they have lost more than $2.5 billion since Facebook’s IPO. They believe that both Facebook and the banks in charge of placing the shares hid the company’s weak growth forecasts while marketing the offering, and that they were therefore deceived.
The facts show that when Facebook went public, its sales were falling sharply compared with the previous year. Even so, the share price was raised, despite the knowledge that this could cause exactly what happened over the following days of trading: a price correction of up to 19%. In other words, shares were sold in a company valued at $104 billion, and a few days later the company was worth less than $90 billion.
The lawsuit has been filed in a district court in Manhattan.
It comes on top of the suit filed just yesterday by an investor against Nasdaq OMX Group for negligence in handling buy and sell orders on the day of the IPO. Phillip Goldberg, an American lawyer known for his class actions, aims to turn it into a class action representing all investors who lost money in the Facebook IPO because of errors in Nasdaq’s systems; some of them say they cancelled their buy orders and still ended up with shares.
At the time of writing, Facebook is trading at $32.24, a 4% gain.
Featured image: Ken Lund from Reno, Nevada, USA, CC BY-SA 2.0, via Wikimedia Commons.
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