A UNITED States federal judge last night said Facebook, its chief executive Mark Zuckerberg and dozens of banks must face a lawsuit accusing the social media company of misleading investors about its financial health before its multi-billion-dollar public offering last year.
District judge Robert Sweet in Manhattan said investors could pursue claims that Facebook concealed material information from its initial public offering (IPO) registration statement.
Investors alleged that Facebook should have disclosed its internal projections on how increased mobile usage and product decisions might reduce future revenues, among other things.
The defendants argued that Facebook had no obligation to make the disclosures, which they called immaterial, even though it had provided such projections to its underwriters’ analysts.
In an 83-page decision dated 11 December but made public yesterday, Sweet said higher mobile usage had already had a “material negative” impact on revenue, and that the company should have disclosed more about the relationship.
“The company’s purported risk warnings misleadingly represented that this revenue cut was merely possible when, in fact, it had already materialised,” Sweet wrote.
“Plaintiffs have sufficiently pleaded material misrepresentation(s) that could have and did mislead investors regarding the company’s future and current revenues.”