Nasdaq fails to secure dismissal of Facebook claims
IPO plaintiffs have case, rules judge; poor testing, inadequate disclosure may have led to losses
Nasdaq's attempt to dismiss Facebook investors' legal actions over alleged mismanagement of the social media company's IPO has been rejected by a US federal judge, Reuters reported.
When Facebook shares launched, Nasdaq's systems were unable to handle the volume of requested sales transactions, causing some transactions to fail and other investors to be left waiting for confirmation of transactions.
The exchange operator is accused of a series of negligent decisions and inadequate stress testing of its systems prior to day-one trading of Facebook stock. Nasdaq had sought to dismiss the lawsuits brought against it by claiming immunity from such claims because it is a self-regulatory organisation (SRO).
US District Judge Robert Sweet in Manhattan, NY, held that SRO status only protected Nasdaq from some claims. However, these did not include complaints that the design and testing of Nasdaq's systems were insufficient prior to 18 May, 2012, when Facebook shares went live. Sweet was also satisfied that inadequate disclosure about known problems caused the plaintiffs to lose money when trading started.
"Once this testing revealed inadequacies and flaws in light of the upcoming largest IPO in Nasdaq history, Nasdaq had a duty to correct its prior statements as to its capabilities," the judge wrote.
"Nasdaq's failure to correct flawed information about its technology capabilities could have impacted plaintiffs' decision to participate in Facebook's offering and ability to trade during that offering."
The judge did not rule on the merits of the surviving claims. The case will continue.
Facebook opened at $38 a share and rose to as high as $45 on opening day, but thereafter fell below the offering price, where it stayed for over a year.
In May Nasdaq paid $10m, a record penalty against an exchange operator, to settle US Securities & Exchange Commission charges over mismanagement of the IPO.