A discovery petition seeking information from Facebook and its bankers to determine whether they defrauded investors in the social network's IPO last month has been dismissed.
Judge Lee Yeakel for the U.S. District Court for Western Texas ruled today that plaintiffs needed to have stated grounds for a lawsuit and could not use the discovery petition to determine whether it had a case. The petition, which was filed by Bogdan Rentea & Associates, sought to depose CEO Mark Zuckerberg, CFO David Ebersman, Chief Accounting Officer David Spillane, and representatives from Morgan Stanley, J.P. Morgan, and Goldman Sachs about whether a negative revenue forecast was withheld from the public before the social network's IPO.
However, plaintiffs did not meet the requirements of Rule 27 of the Federal Rules of Civil Procedure, which allows for requests for depositions from defendants and document discovery in cases that can't be brought to trial in any U.S. court and that there is an immediate need for preserving testimony to prevent a failure of justice to occur.
"Rentea does not represent to the court that there is any urgency surrounding his desire to depose the defendants or that he is unable to presently bring this suit against the respondents," Yeakel said in a ruling first reported by TechCrunch. "Because Rentea seeks not to perpetuate testimony, as permitted under Rule 27, but rather to determine whether a cause for action exists, the court finds that his petition perpetuate testimony should be denied."
The social-networking giant applauded the judge's decision.
"We are pleased with the court's decision. As we've said before, we believe the cases filed against us in connection with the IPO are without merit, and we will continue to defend ourselves vigorously," a Facebook representative said in a statement.
Facebook is facing a wave of lawsuits from investors who claim the company's executives and its bankers misled them by "selectively disclosing" material information about its revenue outlook. 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.
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.