MARK ZUCKERBERG TO FACE LAWSUIT OVER MISLEADING INVESTORS – Since the close of trading on the inauguration of Facebook’s IPO, there have been cries of foul play as many investors lost money as the price of Facebook’s stock plummeted.
In the pursuing months a number of investors have accused Mark Zuckerberg and his bankers of ‘misleading investors’ prior to its US$16 billion flotation last year.
According to some investors, the company concealed information from its IPO statement that would have painted an entirely different picture of the company’s worth and therefore opening stock price.
On Wednesday a U.S District Judge Robert Sweet in Manhattan had ordered that Mark Zuckerberg and dozens of banks must face trial and answer to the accusations leveled against them.
One of the key issues and accusations from investors is that Mr. Zuckerberg did not disclose projections on how mobile device usage might impact the company’s ability to generate advertising revenue or whether in fact a rise would reduce such revenue.
This particular issue has been the concerns of investors from the outset but officials at Facebook have always argued that they had no obligation to make such information public; even sighting the information as immaterial to the company’s ability to generate revenue.
Despite Facebook’s assertions the information was provided to its underwriters’ analysts in order to assess the impact but their findings were not made public in the final IPO statement and have never been released for investor scrutiny.
Judge Sweet’s announcement came just days after Mr. Zuckerber announced he was to offload 41.35 million ‘B’ shares in Facebook with a value of approximately US$2.3 billion. According to the documents filed with the U.S stock market regulators, the sales was for ‘tax purposes’.
Despite such a large number of shares being sold, this will still allow Mr. Zuckerberg to retain absolute power over Facebook due to his retained shareholding in which each share that he holds provides 10 voting rights.
Share prices in Facebook have in fact risen strongly in recent months and despite a 4.1% drop in pre-market trading the shares closed on Wednesday at US$55.57; a significant improvement over its IPO opening of US$38.00.
After examining a number of documents on the alleged misleading IPO statements, Judge Sweet declared that higher mobile usage had indeed had a ‘material negative impact’ on expected revenues and therefore Facebook should have included such information in its original IPO statement so that investors had full disclosure as to the possible investment value of company.
Judge Sweet went on to say in his summation that the plaintiffs had indeed shown sufficient material misrepresentation(s) that may have, or did, mislead investors regarding Facebook’s future and current revenues.
As Facebook now shows profitability, and is even expected to join the coveted Standard & Poor’s 500 index as of the close of trading today, this lawsuit comes at a time when Facebook is just beginning to show investor returns after struggling for more than a year to produce a stock price above its original IPO opening price of US38.00.