Facebook, underwriters sued over "secret" changes to revenue forecast

By on May 23, 2012, 5:00 PM

Facebook’s record-setting IPO was the talk of the town leading up to last Friday when shares were made available for purchase on the NASDAQ. To say that the process went smoothly would be the understatement of the century. The IPO was first plagued with computer glitches that delayed transactions and as the past few days have played out, share prices have dropped like a rock.

Now that the excitement has died down a bit and the dust has started to settle, the finger-pointing begins. Business Insider is reporting that Facebook investors have filed a civil lawsuit against the social network and their underwriters, Morgan Stanley and Goldman Sachs Group through the law firm Robbins Geller, the same firm that won $7 billion in their Enron suit.

As the story goes, Morgan Stanley cut their estimates for the company during the road show for the IPO. The road show, often called a dog and pony show, is when the management of an IPO travels around the country to meet with investors in an effort to get them on board to buy shares.

This wouldn’t normally be an issue except they allegedly only told high-level investors about the cut. Everyone else interested in buying stock was none the wiser. Lawyers are arguing that this information never made its way to Facebook’s prospectus, which is an overview of the company’s financial health and risks.

Scott Sweet from research firm IPO Boutique said that some people in the know where concerned about the lower numbers and that it was very unusual for a lead underwriter to cut estimates so close to an IPO.

We’ll have to see how this one plays out in court or if Facebook ultimately decides to settle with the plaintiffs.




User Comments: 10

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Guest said:

"To say that the process went smoothly would be the understatement of the century"

I don't often comment on people's writing however understatement implies that the event is being sold short, or not built-up enough. With the problems encountered during the IPO, I believe misstatement would be more appropriate.

An understatement would be along the lines of "to say the process didn't go too smoothly..."

psycros psycros said:

Edit: "<I>didn't</I> smoothly".

Wait, Morgan and Goldman Sachs involved in a <I>stock scandal</I>? It can't be! Four years later and still not a single indictment or arrest. Nothing but huge bonuses from the companies they plundered and hot air from DC. America the Stolen.

psycros psycros said:

Edit of edit: "<I>didn't go</I> smoothly". (I swear this site's comments sometime drop small words like "go" and "to". Is it my HTML...?)

Tanstar said:

I see the incorrect turn of phrase has been mentioned. I was very confused when I read that on the front page, then followed the link to see the article saying the opposite of "saying the process went smoothly would be the understatement of the century."

Guest said:

Facehook sux. I care about ownership of my personal information, photos and thoughts. I do not communicate with complete strangers. I have an independant brain and do not follow the pack. My friends are real, touchable people. Mark Zuckerberg is nothing but an opportunistic thief. He values your information at $100 but you at $0.

Enjoy the fall of Facehook and the unstoppable rise of Google. I will.

gwailo247, TechSpot Chancellor, said:

0

<p><span style="color: #888888">Facehook sux. I care about ownership of my personal information, photos and thoughts. I do not communicate with complete strangers. I have an independant brain and do not follow the pack. My friends are real, touchable people. Mark Zuckerberg is nothing but an opportunistic thief. He values your information at $100 but you at $0.</span></p>

<p><br /></p>

<p><span style="color: #888888">Enjoy the fall of Facehook and the unstoppable rise of Google. I will.</span></p>

Your implication is that people care about Facebook as a brand the same way they cared about MySpace as a brand. They don't. Facebook = MySpace. G+ = Facebook.. X? = G+/Facebook

People are going to move to whichever format provides them access to their friends. I have 10 times as many friends on FB as on Google, so I'm staying on FB. If they all move to G+, I'll consider moving.

NTAPRO NTAPRO said:

<p><span style="color: #888888">Facehook sux. I care about ownership of my personal information, photos and thoughts. I do not communicate with complete strangers. I have an independant brain and do not follow the pack. My friends are real, touchable people. Mark Zuckerberg is nothing but an opportunistic thief. He values your information at $100 but you at $0.</span></p>

<p><br /></p>

<p><span style="color: #888888">Enjoy the fall of Facehook and the unstoppable rise of Google. I will.</span></p>

orly

Guest said:

Facehook sux. I care about ownership of my personal information, photos and thoughts. I do not communicate with complete strangers. I have an independant brain and do not follow the pack. My friends are real, touchable people. Mark Zuckerberg is nothing but an opportunistic thief. He values your information at $100 but you at $0.

Right...............

Enjoy the fall of Facehook and the unstoppable rise of Google. I will.

And google don't do any of that? google are a nice company who protect your data eh...........?

Guest said:

"Would be the overstatement of the century."

Guest said:

another ripoff by the wall street .

When they stop this greed!

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