Facebook, Zuckerberg sued over IPO

Updated on: 2012-05-23 || Source: cnet.com
The lawsuit charges the defendants with failing to disclose in the run-up to Friday's IPO "a severe and pronounced reduction" in forecasts for Facebook's revenue growth

Facebook shareholders have filed a lawsuit against 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, according to Reuters, which cited a law firm for the plaintiffs.

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. "The value of Facebook common stock has declined substantially and plaintiffs and the class have sustained damages as a result," the complaint says, per the Reuters report.

Facebook's stock opened Friday priced at $38 and, aside from a slight uptick right at the start, has been trading lower since then. It closed at $31 last night. At the moment, in early trading today, shares are up slightly to around $31.70.

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

Speaking on CBS This Morning today, Blodget described the sequence of events regarding the estimates and the failure to fully share material information. "The fact that it was only distributed verbally to a handful of institutions as opposed to all investors is a problem."

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