Laws Of .com

Lawsuit Against Facebook for IPO Disclosures

A lawsuit was filed against Facebook on June 15th in the U.S. District Court for Southern New York alleging that the social networking giant misled investors by "electively disclosing" material information about its revenue outlook.

It was alleged that the lead underwriter for the deal told major clients that Facebook was reducing its revenue forecast for the company, reportedly because an unnamed Facebook executive instructed Morgan Stanley, JP Morgan Chase, and Goldman Sachs to do so. It was further alleged that these reductions were material information which was not shared with other Facebook investors, but was selectively disclosed to certain preferred investors. While the lawsuit, which is seeking class action status, points out that the revision to Facebook's prospectus warned that a reduction in advertiser spending could have an adverse effect on revenue, it alleges that Facebook failed to disclose that it was already "experiencing a severe and pronounced reduction in revenue growth" due to a shift in Web site usage from traditional PCs to mobile devices.

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