In re Facebook, Inc., IPO Securities and Derivative Litigation
Status: Ongoing Case
On May 17, 2012, Facebook and the IPO underwriters conducted the IPO--in which the selling shareholders sold 421 million shares of Facebook stock at $38 per share for total proceeds of over $16 billion—which represented one of the largest IPOs for a technology company in history. The very next day, previously undisclosed news of Facebook’s declining revenues began to emerge. Reuters reported that, just days before the IPO, Facebook had taken the “rare and disruptive” step of cutting its revenue guidance to analysts during the time period that its IPO 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 the company’s stock.
Reuters later revealed additional information regarding Facebook’s revenue cuts, including that, in response, analysts from three of the lead IPO underwriters (Morgan Stanley, Goldman Sachs, and JPMorgan Chase) had also revised their revenue estimates for the company in the midst of the company’s IPO roadshow, but disclosed this fact only to a small number of select clients.
In response to the above disclosures, the Facebook’s stock price fell more than 18 percent below the IPO price, wiping out billions of dollars in market capitalization.
The lead plaintiffs, who represent a class of purchasers of Facebook Class A common stock in the IPO, allege that Facebook made materially untrue and misleading statements in its Registration Statement and Prospectus.
The lead plaintiffs filed a consolidated complaint on February 28, 2013. On April 30, 2013, the defendants filed a motion to dismiss the consolidated complaint. On December 12 2013, the court denied the defendants' motion to dismiss the consolidated complaint in all respects, an important victory for lead plaintiffs and the class. In a second attempt, the defendants filed a motion to amend and certify the December 12 ruling for interlocutory appeal. On March 13, 2014, the court denied that motion as well, stating, “the issues raised by Defendants' are a repeat of the arguments Defendants unsuccessfully raised in its motion to dismiss, and a motion for certification of an interlocutory appeal may not be used to simply ‘repeat arguments made in [a] motion to dismiss.’”
The lead plaintiffs filed a motion for class certification on January 13, 2015. The case is currently in discovery.
The case is In re Facebook, Inc., IPO Securities and Derivative Litigation, No. 12-md-02389 (S.D.N.Y.). The lead plaintiffs are North Carolina Department of State Treasurer (on behalf of the North Carolina Retirement Systems), Arkansas Teacher Retirement System, and Fresno County Employees’ Retirement Association. Labaton Sucharow represents North Carolina Department of State Treasurer and Arkansas Teacher Retirement System. The defendants include Facebook, Inc., certain Facebook directors and officers, and the underwriters of the Facebook IPO.