Facebook may have just set a record. In the seven days since the company went public, it's managed to become the subject of two congressional investigations and at least three lawsuits.
One Facebook IPO lawsuit wouldn't have been a surprise -- with an offering this large, there was bound to be a disgruntled investor or two. But between the 2-hour NASDAQ delay and the falling stock prices, few can say they are shocked about the current state of Facebook's legal affairs.
These suits aren't only Facebook's problem, either. Though a few claim the company's IPO documents omitted material facts, plaintiffs are also accusing lead underwriter Morgan Stanley of making crucial information known to only a few investors.
Information about these accusations is scarce, but they seem to be connected to Facebook's decision to update their IPO filings on May 9, which the Associated Press reports was three days into its pre-IPO road show. With users switching to mobile gadgets, Facebook projected that it would see a reduction in its quarterly revenues.
Executives gave this information to underwriter analysts and told them their revenue forecasts should be at the lower end of the previously provided spectrum. This information was then given to institutional investors, while Business Insider report smaller investors were left in the dark.
Some, including Wall Street watcher Henry Blodget, believe the revenue reductions influenced institutional investors, lowering the price at which they were willing to buy stock. Smaller investors were unable to plan for this possibility.
It's unclear who was given the responsibility of telling investors about the changed forecasts, but the plaintiffs behind the Facebook IPO lawsuits don't seem to care. Facebook should have made this information completely public, they say, and Congress seems to agree.
- Facebook, banks sued over pre-IPO analyst calls (Reuters)
- Facebook Shareholders File Class Action Lawsuit Over IPO (FindLaw's Courtside)
- Facebook Plaintiffs Amend $15B Lawsuit on Day of Facebook IPO (FindLaw's Courtside)