Facebook And Mark Zuckerberg To Face IPO Lawsuit
It is over a year and a half since it happened, but a court ruling revealed yesterday means that Facebook is now set to face charges over the handling of its floatation on the stock market. In contention are its initial public offering (IPO) and the statement released beforehand, with some shareholders arguing that Facebook deliberately omitted crucial information that could have influenced their choices. Manhattan judge Robert Sweet agreed that there are questions to be answered, enabling the unhappy investors to sue Facebook, the banks it was dealing with, and Mark Zuckerberg himself.
One of the big issues for the investors is the fact that the statement in question contained very little information on mobile forecasts. As other big internet players were already aware of the significant and distorting impact shifting mobile use trends were having on the market, it is arguable that Facebook must have been privy to the same information and that it may have withheld it deliberately in order to gain a tactical advantage. Despite Facebook’s popularity on mobiles, it took a long time to effectively monetize its presence; therefore, revenues dropped significantly over the months after the sale, leaving some shareholders facing significant financial difficulties.
Opening at $38 per share, Facebook saw this value drop to $17.55 at its lowest point in September; however, it has since recovered by improving the options available to marketers via mobile. Facebook has also been challenged over its failure to provide information on planned changes to its presentation; this negatively impacted revenue, as marketers were less effectively able to connect with users for some months, even via traditional computers.
The Facebook floatation has been described as having the worst IPO for ten years and looks all the more clumsy in the wake of the successful Twitter floatation that took place earlier this year. Although Facebook is doing well and can probably deal with any fines it has to pay without struggling as a result, this will come as a blow to its business reputation even if it wins the cases. It could also make it more difficult for Facebook shares to be traded at a healthy price in future, as the market is now a lot more skeptical; indeed, initial reactions to Twitter’s floatation proposal suggest that investors are now more wary of trusting social media in general, recognizing that constant change is needed for it to retain its market share and that not every change will be successful.