Facebook, Zuckerberg Sued Over IPO

mrquagmire writes with this snippet from CNET: "Facebook shareholders have sued the social network, CEO Mark Zuckerberg, and a number of banks, alleging that crucial information was concealed ahead of Facebook's IPO. The lawsuit, filed in the U.S. District Court in Manhattan this morning, charges the defendants with failing to disclose in the critical days leading up to Friday's initial public offering 'a severe and pronounced reduction' in forecasts for Facebook's revenue growth, as users more and more access Facebook through mobile devices, according to Reuters, which cited a law firm for the plaintiffs."

Comments

Fuck 'em.

[localman57]

Seriously. The P/E was stupidly high before. Now, even under the revised projections, it's slightly stupidly higher. The stock was due to tank in any case. As we used to say on the playground, "NO DO-OVERS!"

Re:Fuck 'em.

[KingSkippus]

Except in this case, some of the analysts were revising down their numbers just before the IPO, and there is some suspicion that the institutional investors got told one thing, and the rest of the plebes got told something else.

Sorry, but that's a violation of SEC laws, and possibly fraud. This is a little more than caveat emptor, this is failing to live up to the legal responsibilities imposed by the SEC.

I'd agree with this when it comes to the bank, but how is this Facebook's or Mark Zuckerberg's fault?

Re:Fuck 'em.

[DragonWriter]

I'd agree with this when it comes to the bank, but how is this Facebook's or Mark Zuckerberg's fault?

My understanding is the basis is because the IPO underwriters revenue projections are material which is required to be disclosed by the company in when doing an IPO (and which was, but only in the earlier, more optimistic, form). Material changes to information that is in the mandatory disclosures which is known to the company and not properly disclosed is a violation of securities laws.

From some of the stories (haven't seen the actual lawsuit text) there appear to also be allegations that one or more Facebook executives were involved in the selective release of the revenue projections to privileged investors, which IIRC would be a different breach of securities laws -- one connected to insider trading -- than failing to make a mandatory disclosure.

You rolled the dice...

[Overzeetop]

...they came up snake eyes. Or, perhaps a five. Either way, you didn't do your due diligence if you thought that Facebook, today, was worth 100:1 P/E ratio with a solid income track record established. Why is it that people want to sue when their bets went bad. Do you sue the track when that clean looking bay you bet to show comes in fourth because they didn't tell you he was off his feed that morning? Do you sue the casino and Nevada Gaming Commission when you don't ply well at the slots because the adjust the payouts since the last months payout percentages were posted?

Re:You rolled the dice...

[ClioCJS]

That's because slot machines don't mislead on the odds. They have regulations and have to have specific odds - 98% payback for Vegas slots for example. They are regularly inspected to ensure that. You lose 2% playing slots in the long run, basically. The odds are known. They aren't presented as different numbers than they actually are, and are public knowledge for all casinos.

Re:You rolled the dice...

[Anonymous Coward]

There is real reason to sue. Partway through the roadshow a facebook exec (an insider) told analysts to dial back earnings growth estimates (provided insider information). This last-minute insider information was made available to institutional buyers of the IPO, but not to the retail buyers. The institutional buyers coalesced around a buy price of 32 dollars, while the retail buyers came in at 40 dollars. Now, post IPO facebook has stopped falling, hovering at, you guessed it, very near 32. The retail investors got screwed, likely illegally.

details here

Re:You rolled the dice...

[bjourne]

Most of us didn't roll any dice at all, but had a third party buy useless Facebook shares for us. All OECD countries put their retirement funds on the stock market (which is total insanity but what can you do?). Idiots managing those funds then thought it was a gansta good idea to get in early on the fb action. If there was relevant information not relayed to them but to other investors then that is equivalent to insider trading. A textbook example of capitalism forcing everyone to play the same game (on the stock market) but then giving some superior rules.

Re:You rolled the dice...

[CanHasDIY]

Did top-level BNBN execs share insider details with Bigs that they withheld from Smalls like yourself? If so, you should have sued, it would have been perfectly legitimate. Insider trading is a crime.

If not, then what happened to you and what's happening now are two completely different circumstances... unless I'm reading the plaintiff's complaint incorrectly? From TFA:

The plaintiffs charge that the changes to the forecast by several underwriters of the IPO were only "selectively disclosed" to a small group of preferred investors and not to the investment community at large.

Re:You rolled the dice...

[gstoddart]

Seriously, RTFA:

The plaintiffs charge that the changes to the forecast by several underwriters of the IPO were only "selectively disclosed" to a small group of preferred investors and not to the investment community at large.

So, Wall Street got told one set of numbers, and everyone else got told another set.

There were two classes of buyers (it is claimed) -- those who were given the actual estimates, and the rest of us.

A report from well-known Wall Street watcher Henry Blodget, citing an unnamed source, posits that a Facebook executive was responsible for telling institutional investors, but not smaller investors, about the reduction in revenue estimates.

So, that would be illegal according to SEC rules.

If all of this information had been made public, and the people lost their money (like some of us expected they would), that would be one thing. But in this case, there was some material omissions.

That's illegal. (At least, if there actually were two different sets of numbers provided to investors.)

Facebook was overvalued, that's true. But it was likely even more overvalued than most were led to believe, which means the institutional investors had an unfair advantage in selling it off to the suckers -- they knew just how much more overvalued it really was. They got to short the stock for free basically.

Re:You rolled the dice...

[SydShamino]

If insiders knew the company was going to go bankrupt the day they sold you stock (for $500) - e.g. they knew it was about to lose value but they sold anyway - then yes you should sue.

Equal information is required for both parties in a transaction or else the market isn't free. If you oppose this - and the underlying regulation it requires - then basically you support fraud - since that's the alternative.

(1) Buy "gas" at a gas station.
(2) Engine seizes because "gas" was 50% water.
(3) Shrug and say "oh well, that's the cost of doing business without regulation".???

So

[JWW]

All the whiny crybabies that got suckered into buying this stinker of a stock now want their losses covered?

Due diligence isn't just a cool sounding term. If you're an investor you've got to assume they're painting a rosy picture to try an convince people to invest. It's your responsibility to figure out if the story is too good to be true.

As trivial as it was to figure out that the Facebook IPO was a ruse, these plaintiffs deserve to have their case thrown out of court.

Couldn't have happened...

[undulato]

...to a nicer guy.

Re:What would Buffett do?

[PolygamousRanchKid]

No, Buffet has clearly stated that he will not buy stock in a company, if he does not know how they make money. That is why he stayed away from .com stocks when they were red hot.

In the long run, he strategy has worked out well for him and his investors.

Re:Which shareholders?

[ClioCJS]

Because they revised their numbers before the IPO, but didn't give those revisions to the people buying it. That's fraud in some peoples' minds. It's mis-representing. It's not buyer beware, it's give buyer something different than you said you were giving them. Your standing is being sold something on false pretenses.

Re:Deleted my account ...

[Anonymous Coward]

The math says your data is still there... you simply can't access it any more.

I wsh there was an ETF for law firms

[peter303]

They seem to always get a piece of the action.

fool me twice, shame on me

[Eponymous Hero]

everyone saw how he made the company by stabbing the people closest to him in the back. what did you think he was going to do with the IPO?

Re:Which shareholders?

[GodfatherofSoul]

It's worse than that. It's not some innocuous omission of information. It's information that made them a lot of money at the expense of other investors. I don't know how strong regulations still are, but this sounds like a strong case.

Re:So that's really why he gave up his citizenship

[geminidomino]

It's amazing how complicated our tax code is yet we can't provide basic human needs (IMHO) to our citizens.

Oh, we can. We just decided that "teh socializim is ebil!!11!" and that money is much better used on endless clusterfucks of wars to "bring freedom" while domestically creating a police state, and corporate blowjobs.

Face it. If you want the government to do something right, you have to tell them to make a left turn.

   

Re:So that's really why he gave up his citizenship

[0100010001010011]

Define "make any sort of money". I make $70k a year as an engineer. Compared to most people it's good. Compared to the top it's a drop in the bucket.

I would have absolutely no qualms paying 50% taxes if it meant I got some sort of services for it like they do elsewhere.

Re:So that's really why he gave up his citizenship

[zlives]

you must be thinking of the ancient slashdot when it was "news for nerds" now... not so much ;)

Re:So that's really why he gave up his citizenship

[s.petry]

Think about your statement for a minute. You do realize that Ross Perot ran, and nearly won, where his platforms biggest goals was to reduce the US tax system to a single postage card sized form for all citizens. Point is: We have know that US taxes have been a wreck for 20+ years.

Now, who do you think lobbied hardest against tax reform then? Who do you think lobbies hardest not to reform taxes now?

1. The people that benefit from the 60,000 pages of tax "law" and loop holes.

2. Tax agencies, and Lawyers that specialize in Tax law.

Most of the US would benefit if it was fixed and fair.

Re:As an American, let me be the first to say...

[ChrisMaple]

Anger and insults constitute a defective response to a statement of facts on how the US is hurting itself.