Investors File Lawsuits As Facebook Stock Plunges

May 24, 2012 Updated: October 1, 2015
Epoch Times Photo
People walk by the Nasdaq stock market where a television monitor displays the Facebook stock price at the end of the trading day on May 18, 2012 in New York, United States. Facebook's stock has steadily dropped to $32 over the past few days, 24 percent below last Friday's opening price of $42 per share and 16 percent below the IPO price. (Spencer Platt/Getty Images)

Last week, Facebook, Inc. CEO Mark Zuckerberg raised $16 billion from the Internet giant’s IPO, made onto the list of the third-largest offering ever in the United States, and got married with longtime girlfriend Priscilla Chan on Saturday.

Just as things were getting too good for the 28-year-old multi-billionaire, Facebook’s stock has steadily dropped to $32 over the past few days, 24 percent below last Friday’s opening price of $42 per share and 16 percent below the IPO price.

Investors competing to buy Facebook shares last Friday changed their status on Wednesday, filing lawsuits against Facebook and its underwriting banks alleging that the social media company did not properly share about its slowing business, according to The Wall Street Journal.

The suit alleges that the lower revenue estimates, forecast by Morgan Stanley, J.P. Morgan Chase & Co., and Goldman Sachs analysts prior to the IPO pricing were only selectively shared, leaving some investors out in the cold. Yet Morgan Stanley responded in statement to The Wall Street Journal that it followed its typical procedures and Facebook called the suit lacking merit.

While one suit, filed in the U.S. District Court in New York, according to The Associated Press, claims that Facebook’s IPO documents contained inaccurate statements and left out important facts, including the banks’ plan to cut their second-quarter and full-year forecasts for Facebook just ahead of the IPO. Another suit, filed in San Mateo County Superior Court in California, claims that the IPO documents misled investors.

Both suits seek class action status on behalf of investors who purchased Facebook’s shares on Friday and lost money as a result.

The House Financial Services Committee and the Senate Banking Commission on Wednesday said they are planning to look into the $160 billion IPO.

Zuckerberg, who sold 30.2 million shares in the IPO, still owns 533 million. Yet his stake has gone down in value by over $3 billion as the stock price dropped.

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