Facebook CEO Accused of Securities Fraud

Precision noted that Facebook CEO Mark Zuckerberg turned 26 last week, and gets to celebrate by being accused of securities fraud. This goes back to the old Facebook legend that Zuckerberg stole code from other Harvard students.

Comments

Remember, folks

[palegray.net]

While Facebook certainly has been in the press an awful lot lately given growing concerns over privacy issues, this is an accusation, not a conviction. From the article:

The latest unwelcome gift: accusations of securities fraud from former Harvard schoolmates who say he and other Facebook executives tricked them into a supposed $65 million settlement that was actually worth far less.

He may or may not be guilty of anything, so let's try to keep a cool head in the meantime.

Re:Remember, folks

[blind biker]

He was not yet a billionaire when he called the Facebook users "dumb fucks". That's right, he was 19, long before those billions would have hit his ego too hard, and already calling the users of his service dumb fucks.

Once that sinks in, I think we can conclude that he has been a douche all along.

Re:Remember, folks

[spire3661]

"The measure of a man is what he does with power" - Plato. As true 2000 years ago as it is today.

Where's the Securities Fraud?

[darkmeridian]

I didn't see anything in the article that suggests he was accused of securities fraud, which generally means an accusation from the SEC for something like insider trading. Ripping off counterparties in a settlement deal may not be great behavior (even though the plaintiffs' lawyers should have realized this a lot sooner than they did) but it is not the same as saying there was securities fraud. Again, it sounds like the article is flamebait or the author just has no idea what he's talking about.

Re:Where's the Securities Fraud?

[Fnkmaster]

I am not a securities lawyer, but the SEC 1934 Act allows private civil suits regarding securities fraud. This act has been amended and reformed and affected by case law, but you can get the basic gist of modern requirements for civil securities fraud lawsuites here.

The securities don't have to be publicly traded. You don't have to sit around and wait for the SEC to investigate. If somebody made material misrepresentations in connection with the sale of securities, that's enough to meet the basic threshold of being subject to this law and open to civil suits. Then there are just a series of bars to get over regarding showing that the person knowingly caused you to lose money and had the intention of screwing you.

These things are expensive to litigate, so the stakes have to be high. Your average $250k angel investment gone wrong isn't going to be something you bring to court. A class action representing thousands of shareholders who each lost hundreds of thousands of dollars in a publicly traded company, however, has enough money at stake to see this sort of lawsuit fairly frequently.

This case is only unusual in that most parties to large private investments on this scale (tens of millions of dollars) are private equity firms or venture capital funds and they generally can do their own due diligence on transactions in the tens of millions of dollars and can afford to write off the expected percentage of complete losses and partial losses. In this case, the suing party took securities that may have been misrepresented as settlement for a lawsuit, and presumably didn't have the resources on hand to conduct their own due diligence.

So I can't say for certain whether a judge will allow this case - are securities offered as part of a settlement being "offered for purchase or sale"? You'd have to ask a lawyer to tell you whether that is technically the case, but if they accepted the securities in lieu of cash, there might be a case for that.

But just because you don't hear about this kind of case terribly frequently doesn't mean it's total bullshit or that the author is flaming or an idiot.

Re:The whole story

[nacturation]

Obviously that valuation was unrealistic, but the Winklevosses agreed to it *because their lawyers told them to.* Their law firm didn't complete their due diligence or else they may have wanted to renegotiate the deal. But that's not even remotely Facebook's fault.

If I'm reading the article correctly, it's not about the valuation but about what class of stock they receive:

"The settlement, however, was to be paid in common shares, not preferred shares, which Facebook itself valued at roughly 75 percent less for the purposes of calculating taxes on stock-based compensation — cutting the settlement’s offer roughly in half."

Re:Hating facebook

[corbettw]

Facebook seems to have gotten big mainly by chance. like being the only bacteria in the pietry dish. The only savvy they had was realizing the peitre dish was available and rushing to get there first.

You're right, no one ever thought of social sites before Facebook.

Re:Hating facebook

[blind biker]

Oh, the "good old times", when Zuckerberg sold the information of 4000 Harvard accounts?
Sure, back then Facebook was so much better, mindful of people's privacy and all.