By Leigh Jones
The National Law Journal, May 23, 2012
And now, the lawsuits.
Facebook Inc.’s Initial Public Offering (IPO) has prompted a dash to the courthouse by plaintiffs attorneys representing shareholders who invested in the social media giant.
At least four securities class action firms said on May 23 that they were in the process of filing lawsuits in the U.S. District Court for the Southern District of New York on behalf of Facebook shareholders.
Robbins Geller Rudman & Dowd already has filed suit, naming Facebook, its executives and the IPO’s underwriters, which include Morgan Stanley, JP Morgan Chase & Co. and The Goldman Sachs Group Inc. The plaintiffs allege that the defendants misled investors about Facebook’s financial health, resulting in the loss of billions of dollars as the stock’s price fell following the IPO.
At least five other law firms announced investigations into alleged wrongdoing by the same parties. Among them were Lieff Cabraser Heimann & Bernstein and Bernstein Liebhard.
On May 22, another plaintiffs shop, Glancy Binkow & Goldberg, filed a securities class action in San Mateo County, Calif., Superior Court over the Facebook IPO. The same day, Miami’s Criden & Love said it was investigating The Nasdaq OMX Group Inc.’s alleged failure to properly execute trades following the IPO.
Facebook, whose stock value plunged by more than 18 percent during its first three days of public trading, issued a comment through a spokesman: “We believe the lawsuit is without merit and will defend ourselves vigorously.”
Goldman Sachs declined to comment. Morgan Stanley said in a formal statement that said its conduct had been in compliance with “all applicable regulations.” JP Morgan did not respond to requests for comment.
The plaintiffs allege that the disclosures to the public about Facebook’s business operations were insufficient, and that it should have disclosed to everyone — not just the underwriting banks that invested in the company leading up to the IPO — that analysts were aware of the risks.
Right now, the plaintiffs firms are operating under a deadline to determine which attorneys will lead the charge to pursue those claims.
Under federal securities litigation rules, the law firm representing the client with the biggest potential loss serves as lead counsel, and those clients are usually institutional investors. Generally, law firms have 60 days after announcing a lawsuit to amass all potential clients.
But it’s not necessary that any of the law firms pursuing the Facebook matter have institutional investors at this point, said Kevin LaCroix, an attorney and executive vice president of OakBridge Insurance Services, a directors-and-officers liability insurance firm.
Robbins Geller represents the Brian Roffe Profit Sharing Plan in the New York action, but other law firms could file on behalf of consumer investors and acquire larger clients during the 60-day period, LaCroix said.
In addition, the Facebook situation is unusual in that the biggest investors in company — the underwriter banks — were those that the plaintiffs allege knew about the company’s lower value. LaCroix added, however, pension fund investors could emerge as the lead plaintiffs.
LaCroix predicted that the federal cases eventually would be consolidated before a single federal court. But the California state case may well stay there, under quirk in securities litigation rules that provides for parallel state and federal litigation within the Ninth Circuit.
Wherever any of the cases proceed, a pivotal point is unlikely to occur until at least a year from now, LaCroix said.
“The name of the game for the plaintiffs is to get past a motion to dismiss,” he said.
Contact Leigh Jones at ljones@alm.com.
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