Facebook, its chief executive and several banks led by Morgan Stanley have been sued by shareholders, who claim the defendants hid the social networking leader’s weakened growth forecasts ahead of Friday’s $16 billion (R132bn) initial public offering (IPO).
The defendants are accused of concealing from investors during the IPO marketing process “a severe and pronounced reduction” in forecasts of Facebook’s revenue growth resulting from increased use of its app or website through mobile devices.
The lawsuit had been filed in the US District Court in Manhattan, a lawyer for the plaintiff said yesterday.
Meanwhile, investors and regulators raised new concerns about the IPO as Facebook shares fell for a second day on Tuesday, extending losses to 18 percent below the $38 offer price.
Morgan Stanley, the lead underwriter, released a statement defending its handling of the IPO after the Massachusetts security division subpoenaed the investment bank on Tuesday over its communications with clients.
The US Securities and Exchange Commission (SEC) and the brokerage industry’s watchdog said they might review the offering, and a buyer of Facebook stock sued Nasdaq OMX over glitches in opening-day trading.
The anticipation that preceded history’s biggest technology IPO has been replaced by investor ire, including about whether the offer was priced too high.
Facebook increased the number of shares being sold in the IPO by 25 percent last week to 421.2 million and raised its asking price to a range of $34 to $38 from $28 to $35. The shares closed at $31 on the Nasdaq Stock Market on Tuesday.
Facebook chief financial officer David Ebersman was the point man on the deal, while chief executive Mark Zuckerberg and chief operating officer Sheryl Sandberg weighed in on major decisions, said people with knowledge of the matter. Dan Simkowitz, Morgan Stanley’s chairman of global capital markets, was one of the main bankers. Michael Grimes, its global co-head of technology investment banking, played a key role.
Morgan Stanley, already taking heat for helping price the IPO, might face regulatory review over claims an analyst shared negative news about Facebook with institutional investors before the IPO, said Richard Ketchum, the chairman and chief executive of the Financial Industry Regulatory Authority. – Reuters and Bloomberg