Article: Shareholders sue Facebook, banks

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Shareholders sue Facebook, banks over botched IPO

The hype surrounding Facebook has rapidly turned sour since the company went public in a media frenzy last Friday. Its share price is collapsing and regulators are investigating allegations that Facebook’s big bank partners withheld key insider information.

Now, Reuters reports that shareholders have filed a lawsuit in Manhattan federal court. The suit claims that Facebook and the banks wrongfully concealed weak growth forecasts, leading to shareholders over-paying for the stock when it debuted last Friday.

In a report this morning, The Wall Street Journal described how Facebook’s Chief Financial Officer, David Ebersman, decided to increase the number of shares offered in the IPO by 25 percent. At the same time, Ebersman also chose to increase the opening price of the shares to $38.

As a result, the market was flooded with too many shares and the IPO quickly fizzled. Shareholders are now accusing Facebook and the bankers of warning institutional investors of a weaker share price while also dumping shares on retail investors who were unaware of the company’s weakened growth forecast.

The lawsuit accuses Facebook, CEO Mark Zuckerberg and the banks of concealing “a severe and pronounced reduction” in forecast growth due to more and more people accessing the site on mobile platforms.

Facebook shares have dipped on three consecutive days, hitting a low of $31 yesterday. The shares are up so far this morning.

gigaom.com/2012/05/23/shareholders-sue-facebook-banks-over-botched-ipo/