Law firm Milberg LLP that it has filed class action lawsuits against in the United States District Court for the Southern District of New York on behalf of purchasers of Facebook common stock. The suit was announced 12 days after Facebook's IPO on May 18.
The lawsuit alleges that the Facebook, "certain" Facebook officers as well as the underwriters, including lead underwriter Morgan Stanley, violated the 1933 Securities Act. Milberg claims that "the Registration Statement and Prospectus issued with the IPO were false because they did not disclose that the company experienced a reduction in revenue growth, and that underwriters lowered revenue guidance during Facebook’s road show."
Of course, the basis for the lawsuit is the drop in share price. Had Facebook shares gained value in the last week, a lawsuit would have been rather unlikely. Milberg says that Facebook share owners can contact the firm to represent them, but there is no need to do so to collect any money, should Milberg succeed with its suit. 421 million shares were sold for $38 per share on May 18, which could translate in a historic windfall for Milberg, given the fact that Facebook has surrendered close to a third of its pitched value of more than $100 billion.
The lawsuit follows a first-come-first-serve tradition of this type of a lawsuit and we already wondered why no one came forward with such a lawsuit within 48 hours of the flopped Nasdaq debut of Facebook. On a more reasonable note, Morgan Stanley CEO James Gorman recently said that early Facebook buyers - those coming in at the time of the IPO - should not have expected fast cash: "People who thought they were buying this stock so they could get an enormous pop were both naive and ordered under the wrong pretenses.”
The fast cash was, at least at this time, reserved for early investors who took risk in investing substantial money into the social network in recent years.
However, there is light at the end of the tunnel as analyst firm Pivotal Research just upgraded Facebook from sell to hold. Facebook shares reacted in Thursday trading with shaky ups and downs. There is still plenty of volatility in the stock, but Facebook share holders now know that, at the very least, it's not only going down.