Wednesday, December 18, 2013
Labaton Sucharow Moves Forward for Investors in Facebook IPO LitigationNEW YORK (December 18, 2013) -- On December 18, 2013, District Judge Robert W. Sweet of the United Stated District Court for the Southern District of New York denied the defendants' motion to dismiss a complaint filed by the North Carolina Department of State Treasurer on behalf of the North Carolina Retirement Systems asserting claims under the Securities Act of 1933 against Facebook, Inc. and other defendants based on alleged misstatements and omissions in the offering documents for Facebook's May 2012 initial public offering ("IPO").
Facebook operates the most popular social network in the world, with approximately one billion users worldwide. On May 17, 2012, Facebook conducted the largest IPO for a technology company in history, in which the underwriters of the IPO sold to investors 421 million shares of Facebook stock at $38 per share for total proceeds of over $16 billion.
Beginning on the night of May 18, 2012, the first day of trading for Facebook stock on NASDAQ, news began to emerge that Facebook was experiencing a decline in its revenues due to increased mobile usage (at the time, Facebook did not display any advertising on its mobile application) and certain product decisions. That night, Reuters reported that, days before the IPO, Facebook had taken the "rare and disruptive" step of lowering its guidance to analysts during the time period that its roadshow was occurring. This news swept through the market and, over the weekend of May 19-20, 2012, members of the financial press reported that this information was highly material and fundamentally affected the value of Facebook's stock.
Then, prior to the opening of trading on May 22, 2012, Reuters again shocked the market by reporting that, "while an investor roadshow was underway," lead underwriters Morgan Stanley, JPMorgan and Goldman Sachs had taken the highly unusual step of "significantly" cutting their revenue forecasts for Facebook, but appeared to have told only a few "major clients" about this highly "negative" development.
On this news, Facebook's stock price fell more than 18% from the IPO price in just two trading days, wiping out billions of dollars in market capitalization.
Reasoning that "Facebook was aware of the material negative impact on Facebook's revenues the Company had suffered as a result of increasing mobile usage and the Company's product decisions ten days before the IPO," Judge Sweet held that all of the alleged Securities Act claims could proceed against the defendants because "Facebook used generalized and indefinite terms in the [IPO offering documents] when describing the impact the increase of mobile users and product decisions could have had on the Company's revenues and financial results. Such terms fail to constitute sufficient disclosure where Facebook knew of the certainty of the trends in mobile usage."
"This is a tremendous victory for our clients and the class," said Thomas Dubbs, a partner at the law firm of Labaton Sucharow LLP, which serves as co-lead counsel for Lead Plaintiffs with Bernstein Litowitz Berger & Grossmann LLP. "We're extremely pleased that the court denied defendants' motion to dismiss in its entirety and adopted all of plaintiffs' arguments. We look forward to quickly proceeding to discovery and trial," said Steven Singer of Bernstein Litowitz.
The consolidated securities class action is styled In re Facebook, Inc., IPO Securities and Derivative Litigation, No. 1:12-md-02389-RWS (S.D.N.Y.).
In addition to the North Carolina Department of State Treasurer, the court-appointed Lead Plaintiffs include the Arkansas Teacher Retirement System, the Fresno County Employees' Retirement Association and Banyan Capital Master Fund Ltd.
The defendants include Facebook, Inc. and several Facebook officers and director (including Chairman and CEO Mark Zuckerberg, COO Sheryl K. Sandberg and CFO David Ebersman), as well as numerous IPO underwriters.