May 23, 2012

Zuckerberg, Banks Sued Over Facebook IPO

"Facebook CEO Mark Zuckerberg, and banks led by Morgan Stanley were sued by shareholders, who claimed they hid the company's weakened growth forecasts ahead of its IPO."

This is going to get very ugly.

As Henry Blodget reported earlier this week, Facebook lowered their guidance for future earnings during their IPO roadshow. That's when the company puts on a presentation for institutional investors in an attempt to garner interest in their shares before they trade.

Apparently Facebook only notified institutional investors of the new guidance, leaving smaller investors in the dark and willing to pay the $42 - $45 initial public price. It's highly unusual for a company to lower guidance that late in the pre-IPO game, and as Blodget further reported, dishonest not to share that revised guidance with all investors.

These guys had to know they were making a terrible error by not releasing their revised guidance to the public.

In the mean time, FB is trading at just under $32 right now. Had Facebook and Morgan Stanley stuck with their original opening price target range of $28 to $35 it's very likely investors would still be in the black on their shares, rather than under water.