Facebook, Zuckerberg, Morgan Stanley Sued by Shareholders

Sharon Gaudin May 24, 2012
Facebook, Zuckerberg, Morgan Stanley Sued by Shareholders
Class action lawsuit, launched Wednesday, alleges info was hidden by Facebook, Morgan Stanley prior to IPO

Less than a week after Facebook's initial public offering, the social networking firm's new shareholders Wednesday filed a class action lawsuit against the company, CEO Mark Zuckerberg, Morgan Stanley and others.

The lawsuit alleges that Facebook executives, including Zuckerberg, CFO David Ebersman, company board members, underwriter Morgan Stanley and others intentionally hid negative views of the company's revenue growth potential prior to last week's IPO.

Facebook officials and its investors could have cause for concern as the lawsuit was filed by Robbins Geller Rudman & Dowd LLP, a San Diego-based law firm that won $7 billion for Enron shareholders from the energy firm's investors.

"[Depending] on how this plays out, it could be a big deal if they did something wrong," said Zeus Kerravala, an analyst at ZK Research. "We live in such a litigious society that if they are found having hidden information, they could wind up paying out millions of dollars."

He added that the lawsuit, along with Facebook's already flagging share price, is a big distraction for Facebook executives. "It takes away from running the business," Kerravala said.

On top of the lawsuit, the IPO also is reportedly being investigated by the U.S. Securities and Exchange Commission and the Financial Industry Regulatory Authority, an independent securities regulator.

Eyebrows were initially raised last Friday when the Facebook's shares failed to hit $50 to $90 a share last Friday after the IPO as some experts had expected. The first day of trading instead ended with a stock price just slightly above it's $38 offer price.

On Monday, the share price sunk to about $34, and then declined a few dollars more yesterday.