Facebook Targeted in Lawsuits Over IPO

Facebook Targeted by Lawsuits

Facebook and Morgan Stanley are being named in lawsuits over the social media giant’s initial public offering.

Two suits, one in New York and one in California, claim that Facebook and lead IPO underwriter Morgan Stanley withheld key information to some investors in the run-up to Facebook’s public debut on May 18.

The IPO had an inauspicious start after trading was delayed by about 30 minutes when NASDAQ had trouble executing trades for the stock. By the end of the day, the Securities and Exchange Commission had announced it was looking into the trading glitches.

Both lawsuits brought by investors contend that Facebook and Morgan Stanley withheld information regarding Facebook’s revenue projections. They say selected investors were given access to the revised growth forecasts.

According to the suits, some investors were made aware of the fact that use of the social network by mobile users was outpacing revenue. Mobile apps that access Facebook do not feature the ads that are a large portion of a website’s revenue stream.

An advertising company also expressed doubt the effectiveness of the ads on Facebook’s desktop site.

The lack of the ads is an inhibitor to revenue, and the suits say that while the company was valued at more than $100 billion on the market it was only posting $40 billion in revenue.

Facebook is staying mum on the allegations because of a regulator mandated 40-day quiet period following an IPO.

Source: ABC News and USA Today