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

Court: United States District Court for the Southern District of New York
Case Number: 1:12-md-02389
Class Period: 05/17/2012 - 05/21/2012
Case Leaders: Salvatore J. Graziano, John Rizio-Hamilton, Adam H. Wierzbowski
Case Team: Jai K. Chandrasekhar

This is a securities class action filed on behalf of purchasers of Facebook, Inc. (“Facebook” or the “Company”) common stock pursuant or traceable to its initial public offering (the “IPO”) conducted in May 2012. The case alleges claims under 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 (collectively, “Defendants”).

In May 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, 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. As a result, the next trading day, Facebook plummeted $4.20 per share, or 11%, to close at $34.03 per share. Then Reuters reported the next day that analysts from three Facebook underwriters 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 $31 per share—or $7 below the IPO price.

In December 2012, Judge Robert W. Sweet appointed the North Carolina Department of State Treasurer on behalf of the North Carolina Retirement Systems, Arkansas Teacher Retirement System, Fresno County Employees’ Retirement Association, and Banyan Capital Master Fund Ltd. as Lead Plaintiffs, and approved their selection of BLB&G as Co-Lead Counsel for the Class. Lead Plaintiffs filed their Consolidated Complaint in February 2013. In December 2013, the Court denied Defendants’ motion to dismiss the Complaint, and in December 2015, Judge Sweet granted Lead Plaintiffs’ motion to certify the case as a class action.

The parties completed fact discovery in August 2016 and finished expert discovery in March 2017. Defendants’ motions for summary judgment and both sides’ motions to exclude expert testimony were fully briefed and argued by August 2017, and the case was scheduled for trial to start in February 2018.

In December 2017, the parties reached an agreement in principle to settle the action for $35 million in cash. Plaintiffs filed a motion for preliminary approval of the settlement in February 2018, and the Court granted preliminary approval of the settlement on the same day.

The Court granted final approval of the settlement in November 2018. An individual Class member who frequently files non-meritorious objections to class-action settlements has appealed the Court’s order approving the settlement and filed his brief in June 2019. Plaintiffs’ and Defendants’ briefs on appeal in support of the settlement were filed in September 2019, and the objector’s reply brief was filed in October 2019. Oral argument on the appeal was heard in September 2020, and one week later, the Second Circuit affirmed Judge Sweet’s approval of the settlement. The objector then filed a motion to recall the mandate remanding the case to the District Court, which the Second Circuit denied, ending all proceedings concerning the objection. We moved in March 2021 for approval of distribution of the settlement proceeds to Class members who filed valid claims. The initial distribution of the settlement proceeds occurred in October 2021, and a second distribution is scheduled for December 2022.