Facebook’s disappointing public company debut has drawn a great deal of media scrutiny and criticism. But the finger pointing has not been contained just to the front pages of the newspapers. Disappointed investors have also now resorted to the courts, and further lawsuits seem likely to follow.


First, on May 22, 2012, an investor who claims to have purchased shares in the Facebook IPO filed a purported securities class action lawsuit in California (San Mateo County) Superior Court against Facebook, CEO Mark Zuckerberg, CFO David Ebersman,   seven outside directors, and 32 offering underwriters.


The complaint (which can be found here) alleges that the offering documents “failed to disclose during the IPO roadshow” that “the lead underwriters, including Defendants Morgan Stanley, J.P. Morgan, and Goldman Sachs, all cut their earnings forecasts and that news of the estimate cut was passed on only to a handful of large institutional clients, not to the public.” The complaint further alleges that the company’s registration statement “was negligently prepared, and as a result, contained untrue statements of material facts or omitted to state other facts necessary to make the statements not misleading.”


In support of these allegations, the complaint cites only two articles by analyst Henry Blodgett. Specifically, the complaint cites (and quotes at length from) Blodgett’s May 19, 2012 article entitled “If This Really Happened During the Facebook IPO, Buyers Should be Mad as Hell” (here), and Blodgett’s May 22, 2012 article entitled “BOMBSHELL: Facebook Bankers Secretly Cut Facebook’s Revenue Estimates in Middle of IPO Roadshow” (here).


The state court securities class action complaint asserts substantive claims under Sections 11 and 15 of the Securities Act of 1933. The complaint is filed in state court in reliance on the “concurrent jurisdiction” provisions of Section 22 of the ’33 Act.


Second, in their May 23, 2012 press release, separate plaintiffs’ counsel announced (here) that they had filed a securities class action lawsuit in the Southern District of New York in connection with the Facebook offering. The complaint (which can be found here) names as defendants the company; its CEO and CFO; seven outside directors: and six offering underwriters, asserts claims under Sections 11, 12 and 15, on behalf investors who purchased shares in the Facebook offering.


According to the press release, this federal court lawsuit alleges that the defendants “failed to disclose that because Facebook was experiencing a pronounced reduction in revenue growth due to an increase of users of its Facebook app or website through mobile devices rather than traditional PCs, at the time of the IPO the Company had told the lead underwriters to reduce their 2012 performance estimates for Facebook.” The press release reports that the complaint further alleges that these revised performance estimates were “not shared with all investors, but rather, was selectively disclosed by defendants to certain preferred investors and omitted from the Registration Statement and/or Prospectus.”


In support of these allegations, the federal court complaint cites a May 19, 2012 Reuters article entitled "Morgan Stanley Was a Control Freak on the Facebook IPO — And It May Have Royally Screwed Itself" (here) and a May 22, 2012 Reuters article entitled "INSIGHT: Morgan Stanley Cut Facebook Estimates Just Before Facebook IPO" (here).


Third, on May 22, 2012, an investor who alleges that NASDAQ “failed to promptly and accurately execute” his order for Facebook shares has filed a purported class action lawsuit in the Southern District of New York against NASDAQ OMX Group and the NASDAQ Stock Market LLC, on behalf of all individuals and entities whose purchase and cancellation orders during the Facebook IPO were delayed or otherwise improperly processed.


The complaint against NASDAQ, which can be found here and which asserts claims for Negligence, alleges that “the IPO was badly mishandled” and that because the attempted Facebook trades were not processed “promptly and efficiently,” the parties attempting to purchase Facebook shares “were unable to determine if they had properly done so.” As a result of the misprocessing of both buy and sell orders, the class members “did not know whether they owned Facebook shares, or at what price, and were accordingly unable to timely sell those shares, suffering losses.”


In support of its allegations, the complaint cites the named plaintiff’s own experiences in his attempt to buy Facebook IPO shares. He alleges that when his purchase orders “failed to execute,” he “sought to cancel” the order. However, rather than cancelling the trades, his account listed the cancellations as “pending.” Despite the cancellation, the purchase order was finally executed more than three hours after it was placed and after the cancellation order. He alleges that as a result of this sequence, he was “unable to determine what shares, if any, of Facebook he held” and that he was “unable to trade in accordance with a rational trading strategy.” The complaint also cites public reports of similar experiences by other investors, as well as public acknowledgement from NASDAQ CEO Robert Greifeld of a malfunction in the trading system’s order processing system.


The question of the existence of concurrent state court jurisdiction under the Securities Act of 1933 as been well ventilated in a variety of cases filed in connection with the subprime meltdown and the credit crisis. As discussed at length here, both the Ninth Circuit and the California state courts upheld the finding of continuing state court jurisdiction for ’33 Act claims in connection with the Luther v. Countrywide case. At least based on the developments in that prior litigation, there would appear to be substantial grounds on which the plaintiffs in the recently filed action against Facebook might proceed in California state court. (Outside the Ninth Circuit, there would likely be less support for concurrent state court jurisdiction.)


In light of the high profile nature of the Facebook IPO and surrounding events, it is hardly surprising that the missteps surrounding the offering have attracted litigation. It does seem as if there is a definite trend in which the securities class action litigation has become a sort of headline hit parade. For example, when Wal-Mart announced the existence of FCPA allegations in connection with its Mexican operations, it got hit with a securities lawsuit. And shortly after JP Morgan Chase announced significant trading losses on a failed hedging strategy, lawsuits followed shortly thereafter. Given that the Facebook IPO is now the story dominating the business headlines, it was perhaps inevitable that securities litigation has now appeared. Indeed, it seems likely that further litigation will follow, as well.