THIS EDIT CONTAINS 4:3 MATERIAL
The hottest internet IPO of all time is up in flames. After a botched public trading debut, investors are slamming Facebook and its underwriters with lawsuits.
A civil case filed in Manhattan federal court - one among many springing up nationwide - claims that the social media giant told analysts at the underwriting firms: Morgan Stanley, Goldman Sachs JP Morgan and others to lower their earnings and revenue projections at the very same time Facebook was talking up IPO shares across the country. And that the firms then shared that material information benefitting only select clients.
Salvatore Graziano is a securities lawyer with Bernstein, Litowitz, Berger & Grossman:
SOUNDBITE: SALVATORE GRAZIANO, ATTORNEY AT LAW, BERNSTEIN, LITOWITZ, BERGER & GROSSMAN SAYING (ENGLISH):
"It looks like the plaintiffs do have a pretty good leg to stand on here. It looks like this case will proceed through discovery and then the facts will come out: the emails, the communications, the text messages..."
In a statement Facebook denied the charges saying, "We believe the lawsuit is without merit and will defend ourselves vigorously."
The case may be complicated. Facebook did amend its IPO documents cautioning investors about the possible impact of users shifting to mobile platforms. But the financial impact of that was not specific.
This creates a grey area says Ron Geffner of Sadis and Goldberg.
SOUNDBITE: RON GEFFNER, ATTORNEY, SADIS & GOLDBERG SAYING (ENGLISH):
"If Morgan Stanley was communicating with certain other clients information that was based on public information available to all but Morgan Stanley did the brain damage to figure out how "a" matches with "b" and is affected by "c" even though we all have access to "a", "b" and "c" and they're only telling certain clients over others, it's not in and of itself clearly violative."
More investor suits are expected to be filed within days which will likely be rolled into one class-action suit. If the claims are found to be true, Facebook and its underwriters could be on the hook for losses and damages in the billions.
Jeanne Yurman, Reuters.
