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Facebook sued over IPO

by LLB Editor
24th May 12 12:30 pm

Hot on the heels of its share price nosedive, Facebook and its Wall Street advisers Morgan Stanley and Goldman Sachs have been sued by investors for making “untrue statements” about its financial health.

The lawsuit filed by US law firm Robbins Geller claims Facebook did not inform all potential investors that the banks had relegated its revenue estimates and that it’s IPO prospectus was “false and misleading”.

“The value of Facebook common stock has declined substantially and plaintiffs and the class have sustained damages as a result,” the complaint said.

Commenting on whether or not Facebook’s IPO was fair play, Ajay Bhalla, professor of Global Innovation Management at Cass Business School said: “Yes, the lead underwriters made a killing from the IPO […] but frankly investors who may have been shortchanged do not have to look that far back in history to have seen this coming. In particular, the trouble with the Facebook stock reminds one of the dot.com IPO boom primarily led by web retailers. Recall companies such as Pets.com, Boo.com or Webvan, which at one time was worth $1.2bn and then flopped.

“This time it is social networks – Facebook commands the position at the pinnacle, and others such as LinkedIn complete the growing social network IPO ecology. The similarities between the build up and the information disseminated to investors in retail IPOs and network IPOs has largely been ignored.”

Facebook has denied any wrongdoing and said: “We believe the lawsuit is without merit and will defend ourselves vigorously.”

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