A federal judge rules Facebook, Chief Executive Mark Zuckerberg, and dozens of banks must face a lawsuit for accusing them of misleading investors ahead of its IPO.
NEW YORK, NEW YORK, UNITED STATES (DECEMBER 18, 2013) (REUTERS) - A federal judge said Facebook Inc, Chief Executive Mark Zuckerberg and dozens of banks must face a lawsuit accusing the social media company of misleading investors about its financial health before its $16 billion initial public offering last year.
In a statement, Facebook said: "We continue to believe this suit lacks merit and look forward to a full airing of the facts."
Facebook went public at $38 per share. The Menlo Park, California-based company's share price rose as high as $45 on May 18, 2012, its first day of trading, but quickly fell below the offering price and stayed there for more than a year.
Investors including pension funds in Arkansas, California and North Carolinaclaimed that Facebook negligently concealed material information from its IPO registration statement that it had provided to its underwriters' analysts.
They sought damages resulting from their having sold or holding onto the shares as they fell below the IPO price, bottoming at $17.55 on Sept. 4, 2012.
The lawsuit does not allege fraud. More than 40 defendants were sued, including Facebook Chief Operating Officer Sheryl Sandberg, lead underwriter Morgan Stanley, Goldman Sachs Group Inc and JPMorgan Chase & Co.
Facebook shares were down 60 cents at $54.26 in afternoon trading.
In court papers, the defendants had countered that Facebook had no obligation to make the requested disclosures, which they called immaterial, and that Facebook's actual results exceeded original projections.
They added that the U.S. Securities and Exchange Commission and other courts have said revenue projections need not be disclosed before an IPO because they are "inherently speculative and unreliable."
Facebook is now profitable, and is expected to join the Standard & Poor's 500 index after the close of trading on Friday (December 20).