* Facebook said to conceal mobile usage impact on revenue
* Facebook says lawsuit without merit
* Sandberg, Morgan Stanley, others were also sued
By Jonathan Stempel
NEW YORK, Dec 18 Facebook Inc, Chief
Executive Mark Zuckerberg and dozens of banks must face a
lawsuit accusing the social media company of misleading
investors about its health before its $16 billion initial public
offering, a federal judge said.
In a decision made public on Wednesday, U.S. District Judge
Robert Sweet in Manhattan said investors could pursue claims
that Facebook should have prior to its May 2012 IPO disclosed
internal projections on how increased mobile usage and product
decisions might reduce future revenue.
"The company's purported risk warnings misleadingly
represented that this revenue cut was merely possible when, in
fact, it had already materialized," Sweet wrote in his 83-page
decision. "Plaintiffs have sufficiently pleaded material
misrepresentation(s) that could have and did mislead investors
regarding the company's future and current revenues."
In a statement, Facebook said: "We continue to believe this
suit lacks merit and look forward to a full airing of the
Facebook went public at $38 per share. The Menlo Park,
California-based company's share price rose as high as $45 on
May 18, 2012, its first day of trading, but quickly fell below
the offering price and stayed there for more than a year.
Investors including pension funds in Arkansas, California
and North Carolina claimed that Facebook negligently concealed
material information from its IPO registration statement that it
had provided to its underwriters' analysts.
They sought damages resulting from their having sold or
holding onto the shares as they fell below the IPO price,
bottoming at $17.55 on Sept. 4, 2012.
The lawsuit does not allege fraud. More than 40 defendants
were sued, including Facebook Chief Operating Officer Sheryl
Sandberg, lead underwriter Morgan Stanley, Goldman Sachs
Group Inc and JPMorgan Chase & Co.
In Wednesday trading, Facebook shares closed up 71 cents at
$55.57. Facebook is expected to join the Standard & Poor's 500
index after the close of trading on Friday.
FACEBOOK: LAWSUIT LACKS MERIT
In court papers, the defendants had argued that Facebook had
no obligation to make the requested disclosures, which they
called immaterial, and that Facebook's actual results exceeded
They added that the U.S. Securities and Exchange Commission
and other courts have said revenue projections need not be
disclosed before an IPO because they are "inherently speculative
Morgan Stanley spokeswoman Mary Claire Delaney declined to
The lead plaintiffs are represented by the law firms
Bernstein Litowitz Berger & Grossmann, and Labaton Sucharow.
Both firms "are quite pleased with the thorough and detailed
opinion by the court," said Thomas Dubbs, a Labaton Sucharow
partner, in a phone interview. "We look forward to prosecuting
this action vigorously."
Dubbs said U.S. securities laws allow damages to be pursued
by IPO investors who sold shares at a loss, as well as by
investors who held on while the share price remained below what
it would have been absent the alleged violations.
Zuckerberg, 29, founded Facebook about a decade ago. Forbes
magazine said he was worth $19 billion in September.
Sweet oversees litigation arising from the IPO, and the
investor case combined 30 lawsuits brought around the country.
On Monday, the judge issued a decision that investors could
also pursue claims accusing Nasdaq OMX Group Inc of
concealing technology problems that led to difficulties in
processing trades on Facebook's first day of trading.
He dismissed claims over Nasdaq's decision not to halt the
IPO or cancel trades.
Sweet's decisions are dated Dec. 11 but were not made public
for several days.
The case is In re Facebook Inc IPO Securities and Derivative
Litigation, U.S. District Court, Southern District of New York,