Facebook Inc, facing a raft of lawsuits from investors seeking to recoup losses from its botched initial public offering (IPO), laid out on Friday how cascading NASDAQ trading glitches might have stoked the confusion that marred its May 18 debut.
Facebook’s IPO became mired in controversy as more than a dozen shareholder lawsuits accused Facebook and its underwriters of obscuring the company’s weakened growth forecasts ahead of the May 18 stock offering.
The No. 1 social network and lead underwriters Morgan Stanley, Goldman Sachs Group Inc and JPMorgan Chase & Co have filed a motion requesting that dozens of shareholder lawsuits over its US$16 billion initial public offering be grouped together in Manhattan federal court.
The filing, while standard in cases with multiple lawsuits, gives a glimpse at how Facebook may choose to structure its defense and represents the social networking company’s first public response to the chaos that engulfed its high-profile debut.
Facebook’s stock leapt 6 percent on Friday to end above US$30 for the first time since May 25. It also recorded its biggest single-day gain since it began trading, as a string of recent improvements to its advertising system raised hopes about its prospects. However, the eight-year-old company has shed a fifth, or US$20 billion, of its value from the US$38 IPO price.
On Friday, chief technology officer Bret Taylor — overseer of the social network’s main platform and mobile business — announced he was leaving this summer, becoming the first senior executive to break ranks.
NASDAQ OMX Group Inc has also been sued by investors who claimed the exchange operator was negligent in handling orders for Facebook shares. NASDAQ spokesman Joseph Christinat declined to comment on Friday.
In the motion filed late Thursday, Facebook — the first US company to debut with a market value of more than US$100 billion — defended its pre-IPO disclosures on mobile user revenue growth. The motion cited reports that Facebook had told underwriters about lowered revenue forecasts, but not amended its prospectus.
Plaintiffs “ignore that what Facebook and the underwriter defendants allegedly did both followed customary practices and did not violate any rules,” according to the motion.
Media reported on May 22 that analysts at Morgan Stanley and other top underwriters cut their Facebook estimates just over a week before the IPO and told some institutional investors about the unusual step in conference calls.
A series of filings on Friday revealed that the Securities & Exchange Commission quizzed Facebook about the potential impact of growth in mobile users in the months leading up to the IPO and asked the company to make the risks plainer.
“Assuming that the trend towards mobile continues and your mobile monetization efforts are unsuccessful, ensure that your disclosure fully addresses the potential consequences to your revenue and financial results rather than just stating that they ‘may be negatively affected,’” the commission wrote in a Feb. 28 letter to Facebook chief financial officer David Ebersman.