Facebook is being sued by shareholders over inconsistent IPO forecasts

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Lawsuit claims some investors were given game-changing info

Facebook being sued
Facebook allegedly withheld information from certain investors

Facebook's shareholders are suing the social networking giant, along with key underwriters for the company's recent IPO, over allegedly misleading investors about the company's growth forecasts.

The lawsuit addresses the fact that just before Facebook went public, the principal underwriters reduced their estimates for the company's second quarter growth without telling some investors about new key information.

The lack of that information, the suit claims, inflated Facebook's IPO price and caused losses from investors not "preferred" by Facebook.

The lawsuit specifically targets Facebook and their principal underwriter Morgan Stanley, as well as underwriters Barclays Capital, Goldman Sachs, JPMorgan Chase, and Merrill Lynch.

Last Friday was Facebook's first day of public trading, and by the end of the second day the price dropped more than 10 percent from the initial offering of $38.

By this morning, Facebook's stock plunged to around $31.

The inside story

Facebook's underwriters reportedly cut their initial estimates because an executive at the social network shared important information with them regarding Facebook's second-quarter growth.

That key information was then conveyed verbally to a select group of potential investors - but other investors were left in the dark.

Thus the seemingly inflated price of Facebook's IPO, which, at $38, appears particularly high now that the stock is hovering just over $30.

"The main underwriters in the middle of the road show reduced their estimates and didn't tell everyone," Samuel Rudman, a partner at Robbins Geller Rudman & Dowd, which brought the lawsuit, said in a published report.

"I don't think any investor in Facebook wouldn't have wanted to know that information."

Official communications channels have reportedly gone silent, and TechRadar has not fared any better in receiving comment.

But a Facebook spokesperson has been quoted as saying "We believe the lawsuit is without merit and will defend ourselves vigorously."

Michael Rougeau
Michael Rougeau

Michael Rougeau is a former freelance news writer for TechRadar. Studying at Goldsmiths, University of London, and Northeastern University, Michael has bylines at Kotaku, 1UP, G4, Complex Magazine, Digital Trends, GamesRadar, GameSpot, IFC, Animal New York, @Gamer, Inside the Magic, Comic Book Resources, Zap2It, TabTimes, GameZone, Cheat Code Central, Gameshark, Gameranx, The Industry, Debonair Mag, Kombo, and others.

Micheal also spent time as the Games Editor for Playboy.com, and was the managing editor at GameSpot before becoming an Animal Care Manager for Wags and Walks.