In re Facebook, Inc., IPO Securities and Derivative Litigation

Updated: April 25, 2014
Status: Ongoing Case
On December 6, 2012, the court appointed Labaton Sucharow as co-lead counsel for lead plaintiffs North Carolina Department of State Treasurer (on behalf of the North Carolina Retirement Systems), Arkansas Teacher Retirement System, Fresno County Employees’ Retirement Association, and Banyan Capital Master Fund Ltd. in a securities class action styled In re Facebook, Inc., IPO Securities and Derivative Litigation, No. 1:12-md-02389-RWS (S.D.N.Y.).

Facebook, Inc. (“Facebook” or the “Company”) operates the most popular social network in the world, with approximately one billion users worldwide. On May 17, 2012, Facebook conducted its initial public offering (the “IPO”), 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—the largest IPO for a technology company in history.

Beginning on the night of May 18, 2012, and continuing over the next several days, news of a decline in Facebook’s revenues began to emerge. On the night of May 18, 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. For example, on May 19, 2012, Business Insider reported that Facebook’s decision to reduce its guidance “mid-way through a series of meetings designed for the sole purpose of selling the stock” was “highly material information. [S]uch a late change in guidance would mean that Facebook’s business was deteriorating rapidly – between the start of the roadshow and the middle of the roadshow. Any time a business outlook deteriorates that rapidly, alarm bells start going off on Wall Street, and stocks plunge.”

On the very next trading day, Monday, May 21, 2012, Facebook’s stock price plummeted. Facebook stock opened sharply down from the IPO price and plummeted throughout the day on extremely high trading volume, closing at $34.03 per share, a decline of nearly 11% from the IPO price.

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, J.P. Morgan, 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.

That same day, Facebook’s stock price again swiftly plummeted. Facebook stock opened the day down sharply from the prior close, and ended the trading session at $31 per share, a decrease of approximately 9%, again on extremely high volume. In just two trading days, Facebook’s stock price had fallen more than 18% from the IPO price, wiping out billions of dollars in market capitalization.

Lead plaintiffs filed a consolidated amended complaint (the “Consolidated Complaint”) on February 28, 2013. On April 30, 2013, defendants filed a motion to dismiss the Consolidated Complaint. The briefing on defendants’ motion was completed on July 16, 2013, and a hearing on that motion took place on October 8, 2013.

On December 18, 2013, the court denied the defendants' motion to dismiss. The defendants requested that the court amend and certify the December 12, 2013 opinion for interlocutory appeal. On March 13, 2014, the court denied that motion. The defendants’ answer was due on Friday, April 25. The case is currently in discovery.
 

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