Facebook and dozens of banks will have to deal with a lawsuit that alleges the company of misleading investors about their financial performance before going public based on a decision from a federal judge.
U.S. District Judge Robert Sweet made the decision in Manhattan on Wednesday. Investors will be able to pursue claims that Facebook should have disclosed internal projections on how increased mobile usage and product decisions will cause future revenue to be potentially reduced.
“The company’s purported risk warnings misleadingly represented that this revenue cut was merely possible when, in fact, it had already materialized,” stated Sweet. “Plaintiffs have sufficiently pleaded material misrepresentation(s) that could have and did mislead investors regarding the company’s future and current revenues.”
Facebook said that the lawsuit lacks merit and they look forward to a full airing of the facts.
Facebook went public on May 18, 2012 at $38 per share. The stock price jumped up $45, but it fell below the offering price and did not surpass that price for over a year. Some of the investors that were affected by the stock included pension funds in Arkansas, California, and North Carolina. The investors claims that Facebook negligently concealed material information from their IPO registration statement. The lawsuit does not allege fraud.
Over 40 defendants are listed including Facebook COO Sheryl Sandberg, Morgan Stanley, Goldman Sachs, and JPMorgan Chase.
The case is filed under In re Facebook Inc IPO Securities and Derivative Litigation, U.S. District Court, Southern District of New York, No. 12-md-02389.