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

So that's really why he gave up his citizenship?

[i_ate_god]

It wasn't because of taxes, it was because of fraud? hmm

First post!

[Anonymous Coward]

First! Sadly, because I got in early, I'm sure I'll lose mod points.

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.

[gstoddart]

As we used to say on the playground, "NO DO-OVERS!"

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.

Yes, the stock seemed over-valued from the get go, but there was information that it was even worse than what had been disclosed publicly. That part is illegal.

This is one of those things that serves to reinforce my belief that much of the market is a Ponzi scheme, and that an IPO is a good way to fleece investors as the big guys take their cut and then get out of it.

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.

[msobkow]

You're talking about a country where cheesecake has to carry a dairy-allergy warning and where chocolate bars that are clearly made with peanuts carry a label that they "may contain nuts."

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...

[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...

[bobbied]

You are correct. IF inside information was tipped and not properly released then there is a serious legal problem for some folks here. One cannot trade on inside (not public) information no matter what the source, no matter what the company.

My guess here is some green horn insider at Facebook spilled the beans by passing improperly vetted inside information to a select few. This tipped off the underwriters, who then traded the stock to their advantage. There will be two issues for the legal system to sort out. First, if anybody broke the insider trading laws (like Martha Stewart did) by tipping or receiving inside information and trading. Both the tipper and the one being tipped are subject to criminal prosecution for violating SEC rules so there could be a bunch of folks at risk here. Second there will be the civil case of the investors who traded without having the same access to information as others. They will claim that Facebook improperly handled inside information and should pay their losses.

Both cases seem to have merit.

Re:You rolled the dice...

[grep_rocks]

Ding ding ding - we have a winner - anyone owning mutual funds could have ended up in effect buying FB, esp since the market cap was so high - I suspect wall street makes most of its money using what is effect inside info (such as high speed trading, and this IPO nonsense) to fleece pension and mutual funds, we all pay for it and we don't have much of a choice, on top of that since 401k contributions are tax free wall street is, in effect, just stealing government money - the beauty of it is they turn around and lobby that taxes are too high for the rich - it is a win win

who didn't know about this?

[shadowrat]

The suit alleges that only big time investors were apprised that rising use of mobile would affect revenue. This was known to everyone weeks ago, well before the IPO. here's an article from a week prior to the IPO all about the mobile risks

http://www.telegraph.co.uk/technology/facebook/9257232/Facebook-issues-revenue-warning-over-mobile-growth.html

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

[Anonymous Coward]

A) Saverin hasn't been involved in the running of facebook in years, and certainly had nothing to do with the IPO, so he will not be the target of this lawsuit in any way.
B) He did give up his citizenship for tax reasons, but not the tax reasons everyone thinks. He cannot and will not escape any taxes on money he made from the IPO, he earned those shares when he was a US citizen and will pay full taxes on them. He renounced his citizenship because he hasn't lived in the US in 4 years and was tired of paying taxes to the US for money he was making working in Singapore, which isn't that unreasonable.

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

[SJHillman]

She's of Chinese descent, and was born in Massachusetts and grew up around Boston. Nothing Indian about her.

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

[Asksa]

He renounced his citizenship because he hasn't lived in the US in 4 years and was tired of paying taxes to the US for money he was making working in Singapore, which isn't that unreasonable.

The USA is actually the only first world country that even taxes their people while they are living overseas. For example in my country you don't need to pay any taxes back home if you live in another country for more than 6 months.

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

[Anonymous Coward]

But isn't Canada just one of the states of the United States?

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

[Anonymous Coward]

And oil and water, bitches! Don't even think about comin' up here and *liberating* us.

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

[michaelwigle]

Nope, I'm a Canadian who moved to the US. I had to do dual income taxes the first year because I spent a partial year in both countries. After that, it was only US taxes. If I were to actually make income in Canada then it would be a different story, I believe, but I can make as much as I want in the US and not pay income tax to Canada.

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

[Sir_Sri]

In canada we do not no.

You have to pay taxes on overseas income if you are canadian resident, and you have to specially disclose if you have foreign assets over 100k or some number around there. If you are a non resident in canada you still have to file income taxes on income earned in canada, which can then be dealt with through the ungodly myriad of tax treaties.

However, if you are *living* out of canada for more than 6 months you are no longer a resident, and do not pay taxes. You also are not automatically covered for health insurance.

*liviing* is important. You can spend 6 months out of canada and still be considered living in canada if you don't have a residence out of the country, and meet the criteria for strong ties within canada (and don't spend 6 months outside of canada in the same place I would presume).

As far as I know the only two countries in the world with citizenship tax are eretria and the US. (http://renunciationguide.com/Citizenship-Based-Taxation-International-Comparison.html) Although I grant that that source is a bit sketchy. Wikipedia says the same thing (that the source is sketchy and quotes the same information).

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

[Anonymous Coward]

You're going to need to back that one up. I believe Canada does the same thing.

False. Canada taxes its residents. Canada does not tax its citizens, unless they are also residents of Canada.

Read the explanation from the Canada Revenue Agency:

http://www.cra-arc.gc.ca/tx/nnrsdnts/cmmn/rsdncy-eng.html

If you want a more detailed explanation of how your residence is determined for tax reasons, you should read Interpretation Bulletin IT-221, Determination of an Individual's Residence Status:

http://www.cra-arc.gc.ca/E/pub/tp/it221r3-consolid/it221r3-consolid-e.html

So I'm afraid I don't think what you say is true.

ME TOO!!!

Re:So

[jrminter]

Not quite that simple. The complaint is that revenue projections were selectively disclosed to insiders. That is a violation of SEC regulations.

FB rocket to the Moon!!!!

[muon-catalyzed]

Screw P/E. Another 4 billion people left to grow baby, booyaah!!! This FB stock is gonna go batman! This is a $100 stock, go Zuckie, go!!

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

[mikael]

You Canadians have all gathered together in large cities right along the border. Looks like an invasion force :)

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

[ShieldW0lf]

First he helps destroy the credibility of the concepts of privacy and secrecy in the population, and now, with the 3rd largest IPO in history, he's helping destroy the credibility of the economic system...

I don't know if he's more like Jesus or Lucifer, but damn I'm starting to love that guy...

Here: the US and Eritrea

[bradley13]

Here's a reference. Only the US and Eritrea are this dumb.

I've lived abroad for more that 20 years, and I am very tired of filing an ever-increasing number of forms with the US authorities. It's not only the IRS, you also have to file separate forms with a separate agency detailing your foreign bank accounts - which, frankly, is none of their business.

The US does allow a deduction against foreign income, but this is worth less and less as the value of the dollar continues to crash. Depends what currency your country uses, of course, but the US doesn't care or make any allowance for that. In my case, the dollar has lost fully half of its value in the last few years. Turn that around: from the IRS point of view my salary has doubled (even though it actually hasn't). Great.

Add to that the pressure the US is applying to foreign banks, in an attempt to rake in money. I won't go into details here, but the US behavior here is closer to blackmail than to any sort of legal proceeding. The result is that foreign banks now ask you up front "are you subject to US taxes?" If you answer "yes", many simply refuse to do business with you. The US government is making it difficult for normal Americans to get on with their lives.

I have also had enough. I will be renouncing my citizenship before the year is out.

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

[ortholattice]

Interesting that he married her right after the IPO.

This puts an objective value on his non-marital (pre-marital?) assets, which she presumably therefore wouldn't share in case of divorce. Combine that with his $1/year salary (presumably to avoid any tax other than 15% capital gains), and her half of community property grows at $0.50/year. If she works, she might end up owing him money if they divorce!

Disclaimer: IANAL and certainly not a divorce lawyer. Please correct me if I am wrong, which I probably am.

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

[davidbrit2]

They didn't so much "gather". Everybody else just froze to death.

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.