Cases

In re Facebook, Inc., IPO Securities and Derivative Litigation

Court: U.S. District Court, Southern District of New York
Case Number: 1:12-md-02389-RWS
Judge: Hon. Robert W. Sweet
Class Period: 05/17/2012 - 05/21/2012
Case Contacts: Salvatore J. Graziano, John Rizio-Hamilton, Adam H. Wierzbowski

This Action is a securities class action filed on behalf of investors who purchased or otherwise acquired Facebook, Inc. (“Facebook” or the “Company”) Class A common stock in or traceable to Facebook’s initial public offering (“IPO”) during the period from May 17, 2012 through May 21, 2012, inclusive, and were damaged thereby.

The case alleges claims pursuant to Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 against Facebook, the underwriters of the IPO, and certain of Facebook’s executive officers and directors. 

Facebook operates the most popular social network in the world, with approximately one billion users worldwide.  The number of users that access the Company’s website each day is a critical metric for Facebook because it derives the vast majority of its revenue from businesses that use the Company’s social network to advertise to its users.  Significantly, Facebook earns less from advertisements shown to users accessing the Company’s network on a mobile device than on a personal computer. 

Until recently, Facebook operated as a private company and was exempt from the stringent disclosure requirements of the federal securities laws.  In its quest to become a publicly-traded company and firmly establish a liquid market for its shares, Facebook hired Morgan Stanley, JPMorgan, Goldman Sachs and others to serve as Underwriters for the Company’s IPO.  On February 1, 2012, Facebook filed with the SEC a Form S-1 registration statement for the IPO that did not include any revenue or earnings guidance.  The final offering documents for the IPO vaguely warned that the growth in use of Facebook through mobile devices may negatively affect the Company’s financial results.  On May 18, 2012, Facebook conducted its IPO and the underwriters sold to investors 421 million shares of Facebook stock at $38 per share, for total proceeds of over $16 billion—the largest IPO for a technology company in history.

The day after the IPO, on Saturday, May 19, 2012, Reuters revealed that Facebook committed a “rare and disruptive move” when it “altered its guidance for research earnings last week [before the IPO], during the road show.”  According to reports, the revisions were prompted by concerns over Facebook’s weaker profits for mobile applications, the fastest growing component of the Company’s business.  As a result, on May 21, 2012, Facebook plummeted $4.20 per share, or 11, to close at $34.03 per share.  Then, on May 22, 2012, Reuters reported that analysts from three Facebook underwriters—Morgan Stanley, Goldman Sachs and JPMorgan Chase—had cut their estimates for Facebook in the midst of the Company’s roadshow, but disclosed that fact only to a few select clients.  In response, Facebook shares fell another $3.03 per share, or 10%, to close at May 22, 2012 at $31 per share—or $7 below the IPO price.

On December 6, 2012, Judge Sweet appointed the North Carolina Department of State Treasurer on behalf of the North Carolina Retirement Systems ("North Carolina"), Arkansas Teacher Retirement System ("Arkansas Teacher"), Fresno County Employees’ Retirement Association ("Fresno"), and Banyan Capital Master Fund Ltd. as Lead Plaintiffs, and approved their selection of BLB&G as Co-Lead Counsel for the Class. 

On February 28, 2013, Lead Plaintiffs, as well as named plaintiffs Jose G. Galvan and Mary Jane Lule Galvan (the “Galvans”), filed the Consolidated Class Action Complaint (the “Consolidated Complaint”).

On April 30, 2013, Defendants moved to dismiss the Consolidated Complaint. On December 12, 2013, the Court issued an Opinion and Order denying Defendants’ motion to dismiss.

On January 10, 2014, Defendants moved to amend and certify the December 12, 2013 Order for interlocutory appeal, which the Court denied on March 13, 2014.

On May 9, 2014, Defendants answered the Consolidated Complaint.

On December 23, 2014, North Carolina DST, Arkansas Teacher, Fresno, the Galvans, Eric Rand (“Rand”), Paul and Lynn Melton (the “Meltons”), and Sharon Morley (“Morley”) filed a motion for class certification. Following briefing and oral argument on the motion, the Court issued an Opinion in December 2015 certifying the Action to proceed as a class action, appointing North Carolina DST, Arkansas Teacher, Fresno, the Galvans, Rand, the Meltons, and Morley as Class Representatives, and appointing BLB&G and Labaton Sucharow as Class Counsel.

Notice concerning the pendency of the Action as a class action was mailed to potential members of the Class beginning in August 2016. 

The parties are currently conducting discovery. A trial date has not yet been scheduled.

 Certification of the Class

The Class certified by the Court consists of the following two Sub-Classes:

all institutional investors that purchased or otherwise acquired Facebook, Inc. (“Facebook”) Class A common stock in or traceable to the company’s May 17, 2012 initial public offering (“IPO”) between May 17 and 21, 2012, inclusive, and were damaged thereby (the “Institutional Investor Subclass”); and

all retail investors who purchased or otherwise acquired Facebook Class A common stock in or traceable to Facebook’s IPO between May 17 and 21, 2012, inclusive, and were damaged thereby (the “Retail Investor Subclass” and, together with the Institutional Investor Subclass, the “Class”).

More complete information about the definition of the Class and who is included and excluded from the Class is set forth in the Notice of Pendency of Class Action, which is available on the Case Documents page.  This Action is ongoing and has not settled and there is no recovery for the Class or any claims process at this time. 

If you are a Class Member, your rights will be affected by the Action.  Please read the Notice carefully.

SUMMARY OF CLASS MEMBERS’ OPTIONS

EXCLUDE YOURSELF BY

OCTOBER 3, 2016

If you exclude yourself from the Class, you will not be bound by any judgment in this Action and will you not be eligible to share in any recovery that might be obtained in this Action.  Requests for exclusion must be postmarked no later than October 3, 2016 in accordance with the instructions set forth in the Notice.

DO NOTHING AT THIS TIME

(RETAIN DOCUMENTATION)

If you do nothing, and you are a member of the Class, you will stay in the Class.  If you remain a member of the Class, you will be bound by all past, present and future orders and judgments in the Action, whether favorable or unfavorable.

If any money is awarded to members of the Class, either through a settlement with Defendants or a judgment of the Court after a trial, you may be eligible to receive a share of that award. 

Please be sure to keep all records of your transactions in Facebook Class A common stock and any other documents (whether printed or electronic) that you have in your possession relating to the Facebook IPO, including media articles and emails you sent or received.

DO NOT mail them to Class Counsel or the Administrator at this time.

  
 

If you wish to discuss this Action or have any questions concerning your rights or interests, please contact John Rizio-Hamilton (212-554-1505); Johnr@blbglaw.com.

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