Facebook, Banks Sued Over Pre-IPO Analyst Calls

Facebook Inc. and banks including Morgan Stanley were sued by the social networking leader’s shareholders, who claimed the defendants hid Facebook’s weakened growth forecasts ahead of its $16 billion initial public offering.

The defendants, who also include Facebook CEO Mark Zuckerberg, were accused of concealing from investors during the IPO marketing process “a severe and pronounced reduction” in revenue growth forecasts, resulting from increased use of its app or website through mobile devices.

Facebook went public last week.

The lawsuit was filed in U.S. District Court in Manhattan on Wednesday, according to a law firm for the plaintiffs. A day earlier, a similar lawsuit by a different investor was filed in a California state court, according to a law firm involved in that case.

In the New York case, shareholders said research analysts at several underwriters had lowered their business forecasts for Facebook during the IPO process, but that these changes were “selectively disclosed by defendants to certain preferred investors” rather than to the public generally.

“The value of Facebook common stock has declined substantially and plaintiffs and the class have sustained damages as a result,” the complaint said.

Representatives of Facebook and Morgan Stanley did not immediately respond to requests for comment.

Facebook shares fell 18.4 percent from their $38 IPO price in the first three days of trading, reducing the value of stock sold in the IPO by more than $2.9 billion.

Latest Comments

• May 29, 2012 at 2:06 pm

  hmmmmmmm says:

  Actually Martha Stewart went to jail for not telling the truth under oath about the insider trading, not for the insider trading itself. So I guess that as the investigatio... read more
• May 25, 2012 at 1:06 pm

  Wake up people says:

  If the allegations are true, and it appears they are, then there should be some jail time here. After all why should they get away with it and not Martha Stewart?
• May 24, 2012 at 2:06 pm

  Water Bug says:

  Investing in anything presents risk. Anyone who bought a bunch of Facebook stock took a chance.