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Facebook’s Next Battle: Investor Lawsuits

Facebook and its underwriters have a new problem on their hands: They’ve been hit with approximately 50 arbitration claims and civil lawsuits from investors following Facebook’s initial public offering in May.

And there’s other players mired in Facebook’s legal issues. As reported Sept. 26 by the Wall Street Journal, hundreds of brokers and financial firms that pushed investors to buy Facebook shares also could potentially face arbitration claims and lawsuits.

According to the WSJ article, the majority of investors are taking legal action against Facebook and its main underwriter, Morgan Stanley, for failing to adequately warn them how mobile usage could negatively impact the company’s financials.

Steven Caruso, a partner at law firm Maddox Hargett & Caruso in New York, said in the Wall Street Journal article that he is preparing to file as many as a dozen arbitration claims with the Financial Industry Regulatory Authority (FINRA) on behalf of investors who claim the deal’s price was “elevated” or they “weren’t given the same information.”

Facebook’s IPO on May 18 was one of the most anticipated events of 2012. The much-heralded IPO has since been on downhill slide, however. The initial IPO share price of $38 has fallen 47% and erased about $38 billion in Facebook’s stock-market value. On Wednesday, Sept. 26, the company’s shares were listed at $19.94 in New York Stock Exchange trading.

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