Nasdaq Denied Immunity for Some Investors’ Claims Over Facebook IPO

By Edvard Pettersson | December 17, 2013

Nasdaq OMX Group Inc. must face some of the negligence and securities law claims by investors who alleged they suffered $500 million in damages from the exchange’s handling of Facebook Inc.’s May 2012 initial public offering.

U.S. District Judge Robert Sweet in Manhattan denied Nasdaq’s request to dismiss negligence claims over “the design, testing and touting” of the exchange’s software, saying the allegations weren’t barred by Nasdaq’s status as a self- regulatory organization.

“Allowing exchanges to be immune from decisions about the promotion and design of business systems implemented to increase trading volume, particularly in such expanding international markets, would allow unrestrained motives for profit to go unchecked,” the judge said in his Dec. 12 ruling.

The investors couldn’t proceed on their negligence claim regarding Nasdaq’s decision not to halt trading during the Facebook IPO because that decision was protected by self- regulatory organization immunity, the judge said.

In May, Nasdaq agreed to pay $10 million to settle claims by the U.S. Securities and Exchange Commission that it broke securities laws in its handling of the Facebook IPO. The SEC cited Nasdaq for “poor systems and decision-making.” In the settlement, Nasdaq neither admitted nor denied fault.

Stock Offering

Also in May, Facebook and a group of banks that underwrote the Menlo Park, California-based company’s IPO, including Morgan Stanley, Goldman Sachs Group Inc. and JPMorgan Chase & Co., asked Sweet to dismiss claims against them growing out of the stock offering.

The judge, who didn’t rule on the merits of the investors’ claims, also allowed their securities-law claims to go forward alleging Nasdaq made false or misleading statements in its regulatory filings regarding the reliability and speed of its technology.

The judge threw out securities-fraud claims regarding Nasdaq’s real time announcements of its decisions to suspend, resume or cancel trading. In so far as these announcements were part of Nasdaq’s regulatory functions, they were also immune to liability claims, the judge said.

Joe Christinat, a spokesman for New York-based Nasdaq, said the company doesn’t comment on pending litigation.

The case is In re Facebook Inc. IPO Securities and Derivative Litigation, 12-02389, U.S. District Court, Southern District of New York (Manhattan).

–Editors: Peter Blumberg, Michael Hytha

 

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