Lawsuits piled up Wednesday against Facebook, its underwriters and the Nasdaq exchange as angry investors sought to recover losses from the company's flop $16 billion IPO. At least four lawsuits had been filed claiming the company and the lead dealers of its shares had withheld crucial information from smaller investors.
The Massachusetts state government issued a subpoena for the lead underwriter, Morgan Stanley, over how it shared information ahead of the massive share sale. And one investor sued the Nasdaq OMX exchange for damages resulting from the huge computer glitches that stalled or prevented the execution of orders on millions of shares after the shares hit the market Friday.
The lawsuits alleged that Facebook, company executives and the underwriters of the IPO violated securities laws by issuing "false and misleading" information in the official documents before the share sale. They "failed to disclose that during the IPO roadshow, the lead underwriters... cut their earnings forecasts and that news of the estimate cut was passed on only to a handful of large investor clients, not to the public," said Glancy Binkow & Goldberg in its suit.
Facebook went public Friday, selling 421 million shares to raise $16 billion in the country's second-largest IPO ever. But the shares plunged 18 percent over the first three trading sessions, driving allegations that large institutional investors had received privileged analyses that drove them to dump the shares, while small investors paid the price.