Facebook has been served with another lawsuit related to its IPO by investors who claim the company's executives and its bankers misled them by "selectively disclosing" material information about its revenue outlook.
The lawsuit (see below), which was filed Friday in U.S. District Court for Southern New York, is based on reports that, in the days before the public offering, the lead underwriter for the deal told major clients it was reducing its revenue forecast for the company. The underwriters of the deal -- Morgan Stanley, JPMorgan Chase, and Goldman Sachs -- reportedly reduced their estimates because a Facebook executive instructed them to. That information was reportedly verbally conveyed to institutional investors but not to smaller investors.
In response to the legal action, a Facebook spokesperson said, "We believe the lawsuit is without merit and will defend ourselves vigorously."
A similar lawsuit was filed last month in the same court.
Facebook, which reported in March that more than half its 900 million members were using mobile devices to access the network, updated its filings with the Securities and Exchange Commission in early May to say that the shift to smartphones and other mobile gadgets was cutting into the prices it can set for advertisers, which would in turn hurt the company's revenue.
The lawsuit, which seeks class action status, points out that the revision to Facebook's prospectus warned that a reduction in advertiser spending could have an adverse effect on revenue. But, the lawsuit alleges, the company omitted the fact that it was already "experiencing a severe and pronounced reduction in revenue growth" due to a shift in Web site usage from traditional PCs to mobile devices.
Defendants failed to disclose in the Registration Statement and Prospectus that, during the roadshow conducted in connection with the IPO, certain Underwriter Defendants reduced their second quarter and full year 2012 performance estimates for Facebook. These reductions were material information which was not shared with all Facebook investors. Rather, this information was selectively disclosed by defendants to certain preferred investors, but it was omitted from the Registration Statement and Prospectus.
In addition to the lawsuits against Facebook, a Maryland investor is suing the Nasdaq stock exchange over glitches in how it handled the offering.