Facebook Becomes Litigious, Asks for Lawsuit Consolidation

Facebook Becomes Litigious, Asks for Lawsuit Consolidation

On Friday, Facebook Inc (NASDAQ:FB) filed a court brief alleging that the NASDAQ OMX Group, Inc. (NASDAQ:NDAQ) trading system’s glitch during its May IPO as well as other actions by the exchange were contributing factors to its now infamous share price decline that has resulted in more than 40 investor lawsuits.

Since its IPO, Facebook Inc (NASDAQ:FB) has lost more than $22.5 billion in market value, reported Bloomberg.

The claims came from a motion filed by the company in New York City’s federal court. It had asked for the numerous investor lawsuits to be combined into one case . They allege that Facebook violated laws by failing to publicly disclose it was cutting revenue projections due to lower-than-expected ad growth prior to its IPO. They further claim the company selectively shared  information with analysts; they subsequently passed it along to certain institutional investors who then acted on it.

Facebook has confirmed it informed the underwriters’ analysts that it was reducing its revenue forecast. Some of them–possibly Morgan Stanley (NYSE:MS), JPMorgan Chase (NYSE:JPM), and Goldman Sachs (NYSE) analysts–then lowered their revenue forecasts and passed along the information to some certain investors.

What did Friday’s filing say?

In Friday’s filing, Facebook said the possible revenue impact noted in its SEC filing had been covered heavily by the media and it was their belief it was not a requirement to disclose the revenue projection revisions in IPO registration documents, according to CNET. The company claims that its actions were business as usual, not in violation of any rules.

By pointing its finger at the Nasdaq, Facebook has alleged that the exchange’s actions placed downward pressure on the stock before during and after its IPO.

Facebook’s brief said, “As has been widely reported in the press, the commencement of trading in Facebook shares was delayed as a result of problems with Nasdaq’s software systems, which impaired the orderly execution of trades and price levels. Press reports suggest that additional Nasdaq trading errors ‘spurr[ed] a cascade of selling’ that made ‘it look as if investors suddenly were turning against Facebook’ and caused some hedge funds to ‘sell their entire positions because of the confusion.'”

Nasdaq did not comment on the filing but here’s a copy of it.

In case you have forgotten, on May 18, Facebook’s stock began trading at $42.05 but then fell to the $38 offering price. Since the IPO, it has continued falling and is now down around 30 percent. This has led to the investor lawsuits. They have also sued Nasdaq, alleging that from the exchange’s technical and trading-related errors, it had affected Facebook’s stock. Uncertainty ensued, followed by losses for investors.

Nasdaq did apologize for the problems but two days after the IPO, a second Nasdaq sell-off further affected Facebook after an offer to compensate investors for those who sold their Facebook shares at a loss.

Facebook wrote in its brief, “On Sunday, May 20, 2012, Nasdaq reportedly advised that investors who lost money as a result of certain May 18 trading errors may be eligible for compensation if they sold their shares at a loss and submitted a claim by noon on Monday, May 21, 2012. Commentators have stated that Nasdaq’s announcement caused a rash of stock sales that again drove down the price of Facebook shares.”

On Friday, Facebook’s shares closed up 6.09 percent to $30.01.

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