Facebook status - losing £15.4m a minute

JUST days after its public flotation, Facebook is being sued by shareholders over allegations that it and banks, including its lead underwriter Morgan Stanley, withheld key information.

JUST days after its public flotation, Facebook is being sued by shareholders over allegations that it and banks, including its lead underwriter Morgan Stanley, withheld key information.

The company has seen its value fall by as much as £15.4m a minute as Wall Street investors claimed the defendants, including Facebook founder and chief executive Mark Zuckerberg, hid the business’s weakened revenue growth forecasts ahead of last Friday’s float that raised $16 billion (£10bn) for the company.

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However, in the one positive development for the embattled company and its advisers yesterday, the new stock market giant’s shares pulled out of their dive in early trading, rising 4 per cent to $32.35.

But, banishing any wider respite for the group and its advisers, a lawsuit was filed in the US district court in Manhattan yesterday, according to a law firm for the plaintiffs.

The defendants are accused of concealing from investors during the IPO (initial public offer) marketing process “a severe and pronounced reduction” in revenue growth forecasts.

Research analysts at Morgan Stanley and other flotation underwriters, including Goldman Sachs, JPMorgan Chase and Bank of America Merrill Lynch, are said to have lowered their revenue forecasts in the run-up to the market debut.

But these changes were “selectively disclosed by defendants to certain preferred investors”, the plaintiffs claim.

“The value of Facebook common stock has declined substantially and plaintiffs and the class [action] have sustained damages as a result,” the complaint said.

Facebook’s shares had closed 9 per cent lower on Tuesday after an 11 per cent plunge on Monday, which had shed $19bn – or nearly a fifth – of the group’s market value from its initial $38-per-share offering, seeing the value of the company fall by $24.3m (£15.4m) a minute over 13 hours of trading.

Last night, the shares closed at $32, up $1, a rise of 3.23 per cent.

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Yesterday’s New York lawsuit follows a similar legal claim filed by a different investor in a California state court on Tuesday.

Two American regulators, the Securities and Exchange Commission (Sec) and the Financial Industry Regulatory Authority (Finra), have pledged to investigate the controversial IPO.

“That’s a matter of regulatory concern to us and I’m sure to the Sec,” said Richard Ketchum, Finra’s chairman and chief executive.

“And without saying whether it’s us or the Sec, we will collectively be focusing on it.”

Facebook’s slashed revenue forecasts result from its customers increasingly accessing the social network via mobile phones and iPads, where the potential for advertising revenue is significantly less.

Morgan Stanley said in a statement that it “followed the same procedures for the Facebook offering that it follows for all IPOs. These procedures are in compliance with all applicable regulations”.

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