Facebook sketches out IPO-mess defence

NEW YORK/SAN FRANCISCO — Facebook Inc , facing a raft of lawsuits from investors seeking to recoup losses from its botched IPO, laid out yesterday how cascading Nasdaq trading glitches might have stoked the confusion that marred its May 18 debut. The No 1 social network and lead underwriters Morgan Stanley, Goldman Sachs Group Inc and JPMorgan Chase & Co have filed a motion requesting that dozens of shareholder lawsuits over its $16 billion initial public offering be grouped together in Manhattan federal court. The filing, while standard in cases with multiple lawsuits, gives a glimpse at how Facebook may choose to structure its defense and represents the social networking company’s first public response to the chaos that engulfed its high-profile debut.
Facebook’s stock leapt 6 per cent on Friday to end above $30 for the first time since May 25. It also recorded its biggest single-day gain since it began trading, as a string of recent improvements to its advertising system raised hopes about its prospects. But the eight-year-old company founded by Mark Zuckerberg in his Harvard dorm room has shed a fifth, or $20 billion, of its value from the $38 IPO price. Despite the downward spiral, many employees made millions with stock awards. On Friday, chief technology officer Bret Taylor — overseer of the social network’s main platform and mobile business — announced he was leaving this summer, becoming the first senior executive to break ranks.

“It’s certainly a negative when so soon after the company has gone public that key people leave,” said Pivotal Research Group analyst Brian Wieser. But he said such post-IPO departures are not surprising, as executives whose equity shares in the company have vested, cash out and move on. “It’s not something that you would take as a vote of no-confidence” in the company, Wieser said. He noted that investors are primarily concerned about Facebook CEO Zuckerberg, Chief Operating Officer Sheryl Sandberg and Chief Financial Officer David Ebersman.

Facebook’s IPO was to have been the culmination of years of breakneck growth for the cultural phenomenon. But it became mired in controversy as more than a dozen shareholder lawsuits accused Facebook and its underwriters of obscuring the company’s weakened growth forecasts ahead of the May 18 stock offering. Nasdaq OMX Group Inc has also been sued by investors who claimed the exchange operator was negligent in handling orders for Facebook shares. Nasdaq spokesman Joseph Christinat declined to comment on Friday.

In the motion filed late Thursday, Facebook — the first US company to debut with a market value of more than $100 billion — defended its pre-IPO disclosures on mobile user revenue growth. The motion cited reports that Facebook had told underwriters about lowered revenue forecasts but not amended its prospectus. Plaintiffs “ignore that what Facebook and the underwriter defendants allegedly did both followed customary practices and did not violate any rules,” according to the motion.

Reuters reported on May 22 that analysts at Morgan Stanley and other top underwriters cut their Facebook estimates just over a week before the IPO and told some institutional investors about the unusual step in conference calls. A series of filings on Friday revealed that the Securities & Exchange Commission quizzed Facebook about the potential impact of growth in mobile users in the months leading up to the social network’s initial public offering and asked the company to make the risks plainer. — Reuters