Menu Close

Facebook Stock Price Drama Heats up with Lawsuit (Nasdaq: FB)

Investors are not taking lightly the lackluster performance of the Facebook stock price (Nasdaq: FB).On Tuesday the finger pointing blame game began, followed today (Wednesday) by lawsuits.

Investors who claim they were misled in the purchase of the social network firm’s stock filed a lawsuit against underwriters Morgan Stanley (NYSE: MS), Goldman Sachs (NYSE:GS), JPMorgan (NYSE: JPM) and the other underwriters, some 33 in total.

According to a complaint filed Wednesday in Manhattan federal court, the investors, who are members of a proposed class action lawsuit, claim they have lost more than $2.5 billion since Facebook’s debut last week.

Morgan Stanley has been accused of mismanaging the offering by either signing off on a price that was too high, or agreeing to sell too many shares.

Facebook went public May 18 amid much hype and fanfare at $38 a share, the high end of the increased price range.

Several investors are frustrated that they got more shares than they were expecting in the IPO. They in turn dumped those shares when Facebook began trading Friday, pressuring the stock’s price down and taxing the Nasdaq’s overburdened platform. This resulted in a myriad of problems including late execution reports, communication problems, and delayed quotes.

Investors never got the first-day trading pop that was widely expected.While the offering raised a whopping $16 billion, and shares did manage to eke out a paltry 1.5% gain in the first day (mostly cushioned by Morgan Stanley trades), shares tumbled 19% in the two subsequent days.

What Lawsuits Mean for Facebook Stock Price

Shares of Facebook Wednesday were up about 3% midday– surprising with the Dow Jones down more than 170 points.

But the lawsuits will no doubt weigh on the stock.

On Tuesday, an investor filed suit against Nasdaq OMX Group in the same court stating the exchange “badly mishandled” trades in Facebook stock.

A Nasdaq senior executive told The Wall Street Journal the exchange wouldn’t have gone forward with the IPO if it was aware of the potential computer glitches.

“We’ll never know how the stock would have traded if it had opened on time and without problems. I don’t fault the IPO price,” tech fund manager Kevin Landis of Firsthand Fund told CNN Money.

Also facing suits are units of Bank of America (NYSE: BAC), Barclays PLC (NYSE ADR: BCS), and members of Facebook’s board. Investors believe Facebook’s realistic revenue growth was misrepresented.

“The true facts at the time of the IPO were that Facebook was then experiencing a severe pronounced reduction in revenue growth,” Bloomberg News reported the plaintiff included in the complaint.

FINRA announced Tuesday that it is looking into whether Morgan Stanley and other bankers broke rules when the firm’s analysts slashed Facebook’s earnings forecasts just days before the IPO. The State of Massachusetts Security Division has broadcast it will subpoena MS on the matter.

With plenty of blame to go around regarding the Facebook IPO fiasco, it appears the flood gates have just opened regarding who will be the prime “fall guy.”

No word yet from Facebook CEO and founder Mark Zuckerberg, who got married Saturday. Certainly this is not the wedding gift he had hoped for – looks like the honeymoon is over already.

Related Articles and News:

Join the conversation and have a little fun at If you are a new visitor to the Stool, please register and join in! To post your observations and charts, and snide, but good-natured, comments, click here to register. Be sure to respond to the confirmation email which is sent instantly. If not in your inbox, check your spam filter.

This site uses Akismet to reduce spam. Learn how your comment data is processed.