In a court brief filed today, Facebook alleges that trading system glitches during its IPO last month and other actions on the part of Nasdaq contributed to a decline in the share price that prompted dozens of investor lawsuits.
The claims are made in a motion Facebook filed seeking to have the 40 or so lawsuits consolidated into one case in federal court in New York City, where Wall Street is located. The lawsuits allege that Facebook violated laws by not publicly disclosing that it was lowering its revenue projections prior to the IPO because of lower-than-expected growth in ads. Investors claim Facebook selectively disclosed that information with analysts who then shared it with select institutional investors who were able to act on it.
In its filing, Facebook says the potential revenue impact was mentioned in its SEC filing that was widely covered in the news and that it was not required to disclose the revenue projection revision in its IPO registration documents. The company claims that its actions were customary and did not violate any rules. And Facebook points a finger at the Nasdaq, alleging that the stock exchange's actions put downward pressure on the stock during and after the IPO.
"As has been widely reported in the press, the commencement of trading in Facebook shares was delayed as a result of problems with Nasdaq's software systems, which impaired the orderly execution of trades and price levels," the Facebook brief says. "Press reports suggest that additional Nasdaq trading errors 'spurr[ed] a cascade of selling' that made 'it look as if investors suddenly were turning against Facebook' and caused some hedge funds to 'sell their entire positions because of the confusion.'"
A Nasdaq representative told CNET that the stock exchange did not have a comment on the filing.
Shortly after Facebook's stock began trading on May 18 at $42.05, shares tumbled to their $38 offering price. They've steadily declined about 30 percent since the IPO, prompting investor lawsuits alleging that company executives and bankers misled them by disclosing material information about the company's revenue outlook only to select investors.
Facebook acknowledges that it told analysts employed by underwriters for the firm's IPO that it was reducing its revenue forecast and some of those analysts, reportedly Morgan Stanley, JPMorgan Chase, and Goldman Sachs, then lowered their revenue forecasts and shared the information with certain investors.
Investors have also sued Nasdaq, alleging that technical problems and other trading-related errors affecting Facebook's stock created market uncertainty and caused investor losses. Nasdaq has apologized for the problems that marred the IPO. Two days after the IPO, Nasdaq triggered another sell-off that drove down the price of Facebook shares after offering to compensate investors if they had sold shares at a loss, the Facebook brief suggests.
"On Sunday, May 20, 2012, Nasdaq reportedly advised that investors who lost money as a result of certain May 18 trading errors may be eligible for compensation if they sold their shares at a loss and submitted a claim by noon on Monday, May 21, 2012," the filing says. "Commentators have stated that Nasdaq's announcement caused a rash of stock sales that again drove down the price of Facebook shares."
Here is the Facebook brief: FB_MDL Brief Copy