Facebook Facing an IPO-Related Suit

One of the most prominent names in the social media world today is Facebook. This is the biggest and largest social network of the world today, which has more than 1 billion users. The Menlo Park based company has come a long way since 2004 when it was launched by Mark Zuckerberg and his friends. Now, Facebook is a public company and is quite successful due to its popularity all over the globe. However, like other companies, it is not without problems and in fact, has been the center of several scandals and privacy issues. The company is again facing a problem in the form of a lawsuit filed against it.

A lawsuit has been filed by a shareholder of the company related to the botch initial public offering. He wishes to hold Mark Zuckeberg, the company's officers and directors responsible for the damage that was done. Gaye Jones, the shareholder of the company is accusing the directors of the company for not disclosing the fact that the social network did not reveal its trends of weaker revenues when users started using mobile devices for getting access to it. According to Mr. Jones, this crucial information had only been shared with key investors and the underwriters only.

With this lawsuit, Mr. Jones seeks to force the directors and the other defendants to pay back the money they had made because of the allegedly overpriced stock at the initial public offering. The complaint states that the defendants were aware that Facebook had not disclosed its reduced earnings and revenue forecasts to the investors and had instead taken advantage of financial benefits and huge profits because of the high initial public offering. The initial price of the shares of the social network had been $38, but they had reduced to $25 within a single month.

Currently, the stock price is $27.72. The initial public offering was conducted in May of 2012 and soon after it; around 50 lawsuits were filed by the investors. The IPO had also encountered technological glitches on the stock exchange as well. Nevertheless, the lawsuit filed by Jones is actually derivative. This means that the shareholder wishes to step in the company's shoes. All the money that would be obtained in the form of damages from Mark Zuckerberg and the directors will not be given to the shareholders, but will be returned to the company. Last month, four derivative cases had been dismissed.

Judge Robert Sweet of US District Court in Manhattan had discovered that when the alleged misconduct had taken place, the shareholders who had filed the lawsuit had owned the stock i.e. even before the IPO. The previous lawsuits had been dismissed by the judge, who had said that warnings related to the increased use of mobile applications had been given by the social network repeatedly. In comparison, Mr. Gaye Jones has owned the stock of the social network since February of 2012. The IPO underwriters have been named as defendants in the lawsuit, which has been filed in Delaware's Court of Chancery.

Comments? Questions? Email Here

© HowtoAdvice.com

How to Advice .com