A federal court allowed a pair of class actions initiated by two groups of shareholders against Facebook to proceed. Plaintiffs accuse the social media giant of hiding important info about its future growth before the initial public offering in 2012.
Shareholders also said that they lost money when they bought the company’s shares, which had been reportedly inflated at the time of the $16 billion IPO. A district judge agreed that investors go on with their lawsuit as groups, or class action suits.
Judge Robert Sweet took the decision on Dec. 11, but it was kept secret until the info surfaced from a court order issued Dec. 29. According to the order, Facebook founder and CEO Mark Zuckerberg and the company’s COO Sheryl Sandberg feature among defendants.
The social-networking giant recently said that it would appeal the class action suits arguing that they are at odds with a clear precedent and are ‘without merit.’ According to court documents, investors claim that the company kept secret several forecasts on its future growth before its IPO was launched.
The forecasts reportedly showed that in the mobile area weak ad revenue might harm the company’s growth prospects on the short term which it initially did. Facebook’s shares were listed at an initial price of $38 per unit on May 18, 2012. Four months later, share prices sank to $17.55, and failed to reach at least the IPO price for over a year, causing losses to investors.
But in the meantime, share prices rebounded to about $107 per unit, as of Tuesday. Currently, the world’s largest social network is worth about $303 billion.
Judge Sweet wrote in his decision that the company brought heaps of evidence to prove that shareholders had known how mobile ad revenue would influence growth prospects. Nevertheless, the judge didn’t agree with the defendant’s claim to force plaintiffs to pursue their claims separately, which could both hinder the judicial procedure and boost costs for investors.
In the end, the judge agreed to approve two subclasses because the outstanding size of the case. Facebook complained Monday that allowing investors to gather in two groups could make the federal appeals court’s ruling ‘arbitrary.’
Plaintiffs are represented by two major law firms – Labaton Sucharow and Litowitz Berger & Grossmann. Labaton said that the recent decision was the right one to make.
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