Facebook, execs left open to IPO lawsuits: judge

Incomplete disclosures about mobile impact give cause of action to investors

Tags: Facebook IncorporationUSA
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Facebook, execs left open to IPO lawsuits: judge Facebook should have shared internal forecasts on the impact of mobile usage on its future revenues, the judge said. (Getty Images)
By  Stephen McBride Published  December 19, 2013

Inadequate disclosure prior to its IPO has left Facebook and its senior executives open to legal action from investors, a US federal judge said yesterday.

According to a Reuters report, US District Judge Robert Sweet in Manhattan said Facebook should have included internal forecasts on possible negative impacts on future revenues from increased access of its services by mobile users, in disclosures made prior to its IPO.

"The company's purported risk warnings misleadingly represented that this revenue cut was merely possible when, in fact, it had already materialised," Sweet wrote in a decision released yesterday. "Plaintiffs have sufficiently pleaded material misrepresentation(s) that could have and did mislead investors regarding the company's future and current revenues."

Facebook opened at $38 a share and rose to as high as $45 when it launched its IPO on the Nasdaq exchange on 18 May, 2012. The stock subsequently fell below the offering price, where it stayed for over a year.

Earlier this week Sweet rejected Nasdaq's attempts to dismiss actions against it for insufficient system testing and negligent management of the IPO.

The lawsuit is one of negligence rather than fraud and names more than 40 defendants, including Facebook chief executive Mark Zuckerberg, the company's chief operating officer Sheryl Sandberg, lead underwriter Morgan Stanley, Goldman Sachs Group Inc and JPMorgan Chase & Co.

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