Facebook’s IPO is turning into a legal and PR disaster. Here is a round-up of what’s gone wrong so far:
1. Facebook, Mark Zuckerberg and the banks that led the IPO are being sued by shareholders for allegedly concealing reduced financial forecasts, reports Reuters today. Here is the complaint filed in the Southern District of New York.
2. Those reduced forecasts appear to have been communicated by Facebook to analysts at the IPO underwriting banks during the roadshow process. Facebook filed a revised S-1 registration statement on 9 May that referred to user growth increasing more rapidly than the number of ads delivered, but the suggestion is that the guidance given by Facebook to the banks’ analysts was more specific and explicitly negative. The analysts communicated that guidance to certain clients, but not to all potential investors.
Such selective disclosure is not necessarily a securities offence, but the SEC and the Financial Industry Regulatory Authority may now investigate. The Massachusetts Attorney General has subpoenaed Morgan Stanley (the lead underwriter) over the issue.
The bigger question is whether Facebook should have made better disclosure of the reduced forecasts in its revised S-1 filing – hence the shareholder litigation.
3. Nasdaq ran a horror show of an opening on Facebook’s first day of trading and couldn’t calculate an opening price for 30 minutes. The tech exchange is facing customer claims over cancelled trades. Nasdaq’s CEO said the exchange was “humbly embarrassed”.