On Tuesday, May 22, 2012, the law firm of Glancy Binkow & Goldberg LLP filed a class action complaint against Facebook, Mark Zuckerberg, nine other individuals defendants (Facebook directors and officers) and sixteen underwriters, alleging that Registration Statement for the Facebook IPO was inaccurate and misleading. The Complaint was filed in Superior Court in San Mateo County, California.
According to the Complaint, Facebook was offering over 420 million shares for sale at a price of $38 per share. The IPO was expected to yield net proceeds of approximately $6.8 billion. The Complaint alleges that during the IPO roadshow, the lead underwriters "cut their earnings forecasts and the news of that estimate was passed on only to a handful large investors, not the public." The Complaint quotes extensively from an article on BusinessInsider.com by Henry Blodget entitled "If This Really happened During the Facebook IPO, Buyers Should Be Mad As Hell …," which disclosed the fact that there was alleged reduced earnings guidance. The next business day (Monday, May 21, 2012) the price of Facebook shares tumbled by over 10%.
The Complaint goes on to quote a second article by Mr. Blodget dated May 22, 2012, entitled "BOMBSHELL: Facebook Bankers Secretly Cut Facebook’s Revenue Estimates In Middle of IPO Roadshow," which revealed the alleged selective disclosure to large investors. The price of Facebook shares fell another 9% that day.
The Class Action Complaint is brought on behalf of persons or entities who purchased or otherwise acquired Facebook shares "pursuant and/or traceable to the Company’s initial public offering." It alleges violations of Section 11 of the Securities Act for the inaccurate and misleading statements in the IPO Registration Statement and Section 15 of the Securities Act (against the individuals for controlling person liability).
This is not the first bit of news regarding the Facebook IPO – on March 14, 2012, the SEC announced that it had filed a complaint in federal court in San Francisco against Frank Mazzola and two of his firms, Felix Investments LLC, and Facie Libre Management Associates LLC, for making false statements to investors regarding limited liability companies designed to pool investors’ funds to invest in pre-IPO companies like Facebook, Inc. (‘Facebook’) and others (as discussed here).
Kevin LaCroix’s always excellent blog, The D&O Diary takes an insightful look at the class action case here and includes a link to the Complaint (here).