May 23

IPO row: Facebook CEO Mark Zuckerberg sued by shareholders

New York: Facebook founder and CEO, Mark Zuckerberg, has been sued by the website’s shareholders over IPO issue, accusing him, Facebook and Morgan Stanley-led banks of keeping them unaware of weakened growth forecasts after $16bn IPO.

US bank Morgan Stanley is in charge of the IPO and the news comes as a probe is under way over alleged securities fraud in the bank.

Smaller investors accused the bank of failing in warning them of more negative assessment of Facebook’s future profits and major investors had been pre-warned about that as “the advance notice allowed the investors to either avoid the stock completely or sell immediately after they floated at $38”, The Telegraph reported.Facebook

The site’s shares have been continuously falling since the initial offering of $38 per share. On Wednesday, the shares opened up at $31.42.

Rick Ketchum, the head of the Financial Industry Regulatory Authority, said “The allegations, if true, are a matter of regulatory concern.”

Mary Schapiro, head of the Securities and Exchange Commission, said: “There is a lot of reason to have confidence in our markets and the integrity of how they operate, but there are issues we need to look at specifically with regard to Facebook.”

It comes amid accusations Morgan Stanley valued Facebook too aggressively.

“If the goal of the underwriters was not to leave a penny on the table, then it was a success. But if it was to ensure that the shares had a favourable market to trade in, then it wasn’t,” The Telegraph quoted Brian Wieser, an analyst at Pivotal Research Group, as saying.

“What they [the underwriters] succeeded in doing was milking market sentiment,” said Andrew Caldwell, a valuations partner at BDO. “You’ve got a problem that if you price it high, you’ve got nowhere else to go.”

Morgan Stanley said IPO procedures used were “in compliance with all applicable regulations”.

“After Facebook released a revised S-1 [IPO] filing on May 9 providing additional guidance with respect to business trends, a copy of the amendment was forwarded to all of MS’s institutional and retail investors and the amendment was widely publicised in the press at the time,” the bank said.

“In response to the information about business trends, a significant number of research analysts in the syndicate who were participating in investor education reduced their earnings views to reflect their estimate of the impact of the new information. These revised views were taken into account in the pricing of the IPO.”