Number Of People Suing Facebook Approaching Number Of People On Facebook

It did not take long for plaintiffs’ lawyers to realize that there was good money to be made by complaining about the Facebook IPO – there are at least two class actions against the company and underwriters so far, not to mention other class-action lawsuits against NASDAQ for screwing up trades.

The securities-fraud lawsuits are the bigger tickets; the one filed in New York today claims $2.5bn in losses though I guess that number is down slightly today. The legal theory here is that Facebook lied in its prospectus, which would entitle buyers in the IPO to “rescission,” that is, to the right to hand their shares back to Facebook in exchange for the price they paid for them. This is a problematic theory in that the only lies that the plaintiffs point to are along the lines of:

21. With regard to the Company’s expectations for the second quarter of 2012, the Registration Statement and Prospectus stated, in pertinent part, as follows:

Based upon our experience in the second quarter of 2012 to date, the trend we saw in the first quarter of [daily active users] increasing more rapidly than the increase in number of ads delivered has continued. We believe this trend is driven in part by increased usage of Facebook on mobile devices where we have only recently begun showing an immaterial number of sponsored stories in News Feed, and in part due to certain pages having fewer ads per page as a result of product decisions.

Which was a lie, according to the complaint, because:

The true facts at the time of the IPO were that Facebook was then experiencing a severe and pronounced reduction in revenue growth due to an increase of users of its Facebook app or website through mobile devices rather than a traditional PC …

Which … is not exactly a different thing? In other words the lies here are more … vague statements of the truth than actual lies?

But the complaint goes on, of course, to cite news reports that Facebook told its underwriters to change their projections, and that those projections were provided to some buyers but not others.* And that definitely looks shitty! I’m not sure that lowering projections is inconsistent with what Facebook said, but it is at least shady, though maybe not illegal, though also maybe illegal. I sort of give up; this complaint seems pretty unconvincing to me but I guess the plaintiffs will have lots of opportunities to amend it whenever a new article comes out so I’d rather not handicap their chances.

Stock-drop lawsuits like these are pretty automatic – the same lawyers who are suing Facebook today also recently sued JPMorgan for keeping a rogue whale on staff and Walmart for bribing everyone in Mexico – and often viewed as pretty socially wasteful. The problem, ordinarily, is that the winners and losers are the same: a stock drops because a company has bad news that it maybe could have done a better job disclosing; a law firm sues the company on behalf of the shareholders who wish they’d known about the news; the suit is settled, with a settlement more or less paid by the company. The money comes from shareholders (via their ownership in the company), and goes to shareholders (via their class action status), with the plaintiffs’ lawyers just taking a big cut out in the middle. In theory these lawsuits deter misconduct, but since settlements are normally paid by companies (or by D&O insurers whose premiums are paid by companies, or by underwriters who have indemnification agreements with the issuers), that theory is maybe a bit remote.

Here, though, you could criticize the lazy complaint, but the potential flow of funds at least makes sense. Facebook remains 85% owned by insiders, some of whom (Zuckerberg, Goldman Sachs) had some say in the IPO process and its attendant failings, others of whom didn’t but still benefited by a process that, if you believe everything you read, concealed one or two warts in the company’s business model and prospects. Matt Yglesias is not wrong:

The thing of it is that Zuckerberg did in fact succeed at selling [$16bn of stock at a $104bn valuation]. Yes, the stock isn’t worth that much anymore. But that just goes to show that after maximizing his control over Facebook and thumbing his nose at the Wall Street game he nonetheless managed to hustle Wall Street for maximum money. Sure underwriters like a nice post-IPO “pop” that lets them reward key clients, but for people making the initial sales an anti-pop is ideal. It means no money was left on the table. Or, rather, it means that negative money was left on the table. And why should he care what happens here on out?

Maybe he should care because he’s only sold $1.1bn of his stock and has $19bn to go? Certainly he wants the stock to go up over time, but that doesn’t rule out an anti-pop preference: it maybe makes the next offering harder, but in general, you can see the appeal to Zuckerberg and the Facebook insiders generally in selling out at a local maximum, even if that local maximum comes shortly before disclosing weak Q2 revenue numbers. If you were a creative plaintiff’s lawyer you might even imagine that the upsizing of the secondary sale mid-roadshow had to do not only with strong demand from IPO buyers, but also with a strong sense from the secondary sellers that they were in fact top-ticking the market and so should do so in as much size as possible.

The punishment – and deterrent – for blatant top-ticking like that is that your next offering is, in theory, harder: buyers remember the fiasco that was the IPO and ask harder questions along the lines of “how do I know you’re not screwing me again.” In theory. But memories are always shorter than you expect them to be in the midst of being pissed off about a broken offering. So, I guess, why not add the additional deterrent of a multibillion-dollar lawsuit?

Brian Roffe Profit Sharing Plan v. Facebook [SDNY]
Facebook IPO Fizzle Draws Securities Suits [D&O Diary]

* Some of these citations are … hasty:

On May 19, 2012, in an article entitled “Morgan Stanley Was A Control-Freak On the Facebook IPO – And It May Have Royally Screwed Itself,” Reuters reported that “Facebook … altered its guidance for research earnings last week, during the road show, a rare and disruptive move.”

Does that sound like the Reuters headline? No? What does it sound like?

(hidden for your protection)
Show all comments

73 Responses to “Number Of People Suing Facebook Approaching Number Of People On Facebook”

  1. tHe oTher JD says:


  2. ImpatientTwat says:

    WTF??? Facebook talks to the NYSE about switching exchanges and no one at dealbreaker bothers to mention it…..this place is turning to crap…..

  3. Bugs says:

    Can we just leave Facebook to the lawyers and go back to the esoterica of credit default swaps or something?

  4. Hedge to arrive says:

    So it's the perfect offset, they all close down their accounts and our long national roadshow is over.

    Fixed that for us.

  5. above the law says:

    Do you know how to post class action motions to facebook ?

  6. Guest says:

    I'm waiting for the day when Matt finally starts footnoting his image captions.

  7. hurf says:

    You can always rely on Henry Blodget for insights into how someone might do things if they were a skeevy research analyst

  8. Guest says:

    Who's the smoke show?

  9. DingALing says:

    Not sure what's more dumb: Dropping out of harvard before taking a finance class, or letting Morgan Stanley be the main underwriter in your highly anticipated IPO.

  10. MS Equities says:

    All investors are equal, but some investors are more equal than others!

  11. The Sword says:

    Matt, you're a clown. Selectively disseminating material information (News Flash Genius: all three underwriters' analysts downgrading is material!) is grounds for a whopping class action suit or more. I hope MS is taken out by this!

  12. guest says:

    1) Rely only on Facebook Prospectus for analysis and decide to buy IPO shares
    2) Lose money and sue everyone for being a retard
    3) ????
    4) Profit!

    Only in the American tort system!

  13. Dead_cat says:

    FB stockholders suing for this is like passengers on the Titanic suing because a waiter spilled a drink on their shoes.

    Lets see, >$100 per user. Hypothetically users could, say, double to be everyone in he world with a computer and/or smartphone. So let's say $50 per potential user, implying the NPV of advertising revenue (ignoring costs) needs to be $50, implying the NPV of spend per user as a result of FB advertising must be say $500. Which is a big number, essentially meaning you have to believe that eventually EVERYONE is going to do 100% of their discretionary spending as a result of FB advertising. And I, for one, won't be joining. Best case FB is 5x overvalued.

  14. Guest says:

    Hey, Started the holiday weekend already? Sitting in the Hamptons ,or are you silenced by a clause in your EULA ? There's also no new blogging about Facebook law suits on ABL

  15. tcgpokkdjx says:

    9rrjoe gzezjpbloyyr, [url=]tunawxgsxjmk[/url], [link=]awsbhqbnuupa[/link],

  16. What’s up to all, the contents existing at this website are really remarkable for people experience, well, keep up the good work fellows.

  17. Randy Jenkins says:

    To be able to know the problem in a society, you should be in a society. The class action lawyer I know of said that every one now should be extra careful and they would have to do all adjustments.

  18. I’m curious to find out what blog system you have been using? I’m having some minor security issues with my latest site and I’d like to find something more safeguarded. Do you have any solutions?

  19. Heу I know thiѕ is оff topic but I ωas wondering іf
    you kneω οf any widgets I сould add to my blоg that automаtically tωeet my neωest twitter upԁates.
    I’ve been looking for a plug-in like this for quite some time and was hoping maybe you would have some experience with something like this. Please let me know if you run into anything. I truly enjoy reading your blog and I look forward to your new updates.

  20. qKOGZx Thanks for sharing, this is a fantastic article post.Thanks Again. Much obliged.

  21. ptfe says:

    I appreciate you sharing this article. Really Great.

  22. Liquidation says:

    Thanks so much for the post.Really thank you! Really Great.

  23. Great blog post.Really looking forward to read more.

  24. recharge says:

    A big thank you for your blog post.Really thank you! Great.

  25. suche says:

    Thank you ever so for you article post.Really looking forward to read more. Awesome.

  26. Forex says:

    Say, you got a nice blog post.Thanks Again. Much obliged.

  27. Thank you for your article post.Thanks Again. Keep writing.

  28. 500 fastcash says:

    Say, you got a nice post.Much thanks again. Much obliged.

  29. Thanks-a-mundo for the blog post.Much thanks again. Keep writing.

  30. diamant says:

    Hey, thanks for the blog.Much thanks again. Great.

  31. I think this is a real great article.Really thank you! Keep writing.

  32. Wow, great article post. Great.

  33. PTFE says:

    Hi, the blog is goood.
    [url=]PTFE[/url] [url=]TEFLON[/url]

  34. I really liked your blog post.Really looking forward to read more. Keep writing.

  35. girlfund says:

    I am so grateful for your blog.Thanks Again. Will read on…

  36. I really like and appreciate your article post.Really thank you! Want more.

  37. Enjoyed every bit of your blog post.Thanks Again. Want more.

  38. Thank you ever so for you blog post.Much thanks again. Really Cool.

  39. A round of applause for your article post.Much thanks again. Great.

  40. Im thankful for the blog post.Really thank you! Want more.

  41. I truly appreciate this post.Much thanks again. Will read on…

  42. Great, thanks for sharing this blog article.Much thanks again.

  43. Workout Pads says:

    I appreciate you sharing this article post.Thanks Again. Much obliged.

  44. Looking forward to reading more. Great article post. Will read on…

  45. I really like and appreciate your article post.Really looking forward to read more. Fantastic.

  46. Looking forward to reading more. Great post.Much thanks again. Cool.

  47. Marine Le Pen (French pronunciation: [ma.ʁin lə.pɛn]; born Marion Anne Perrine Le Pen; 5 August 1968) is a lawyer by profession, a French right-wing politician and the president of the Front National (FN), the third-largest political party in France, since 16 January 2011. She is the youngest daughter of the French politician Jean-Marie Le Pen, former president of the FN and currently its honorary chairman, and Marion Maréchal-Le Pen's aunt.

  48. hello!,I like your writing very so much! percentage we keep up a correspondence extra approximately your article on AOL? I require an expert in this house to resolve my problem. May be that is you! Taking a look forward to see you.

  49. […]one of our guests just lately proposed the following website[…]

  50. Thanks for sharing, this is a fantastic blog article. Cool.

  51. affiliat says:

    Muchos Gracias for your blog post.Really thank you! Much obliged.

  52. Really appreciate you sharing this blog.Really thank you! Really Great.

  53. zits says:

    A round of applause for your blog. Cool.

  54. Looking forward to reading more. Great article.Much thanks again. Really Cool.

  55. Awesome article.Really thank you!

  56. Major thanks for the article.Really thank you! Really Cool.

  57. wow, awesome blog article.Thanks Again. Much obliged.

  58. ptfe teflon says:

    Thank for your blog. It is Goood, Hope more for it. [url=]PTFE[/url]

  59. Thanks for the post.Thanks Again. Great.

  60. Looking forward to reading more. Great post.Thanks Again. Will read on…

  61. Appreciate you sharing, great article post.Much thanks again. Great.

  62. ptfe gasket says:

    HI, Thank for your blog. I love your blog. Hope more !! [url=]ptfe[/url] [url=]PTFE[/url] [url=]PTFE[/url]

  63. PA schools says:

    Great, thanks for sharing this blog article.Really thank you!