Lawsuits have been filed by shareholders against Facebook, Mark Zuckerberg and Morgan Stanley claiming they hid information that would cause the stock to be worth less than the IPO, the 19 page suit was filed Wednesday morning in the U.S. District Court in Manhattan by the Brian Roffe Profit Sharing Plan, Jacob Salzmann and Dannis Palkon.
By noon today, shares of Facebook were trading at $31.65 a share, down from it's IPO of $38, and regulators are now looking into both Facebook and banks that facilitated trades for wrongdoing as new information emerges that show some banks failed to fully disclose information they had on Facebook, and that Facebook gave false and misleading projected information in an attempt to trump up the stock value.
So far, the only winners in the Facebook IPO has been the banks, as they collect trade commissions to handle Facebook buy and sell orders. Facebook initially was worth over $106 billion at the close of the first day of its IPO, but as of this morning was worth $60 billion, meaning it has lost $46 billion in value since it began trading on the Nasdaq.
Most trumpeted this would be the largest and most successful IPO in history, but have since retreated and called the IPO the biggest flop on the market.
In question is, after Facebook cut its revenue forecast and urged the 33 underwriters to lower the opening price shortly before the IPO, as it claims it did, why banks did not pass on this information to potential investors. Analyst with several large trading banks warned of lower results, but those same banks quarantined those reports to keep them from becoming public.
One of the underwriters said, "Facebook changed the numbers. They didn't forecast their business right and they changed their numbers and told analysts," said another source at one of the underwriters with knowledge of the situation.
The company had issued a revised prospectus on May 9 in which it cautioned about the possible negative impact of Facebook users shifting to mobile platforms, but the vague language fell well short of an explicit warning of lower revenues or earnings. Facebook has yet to make much revenue from mobile advertising.
Further hurting Facebook, General Motors pulled all of its $10 million in advertising from the social media website citing their results as "ineffective", this in turn caused several other companies to do the same.