Klein & Wilson

Facebook prevails in IPO lawsuit

California is home to many of the world's most innovative technology companies, and investors are often eager to purchase shares when a Silicon Valley icon holds an initial public offering. Facebook grew from humble beginnings to become a social media giant, and its May 2012 IPO saw the firm's market value surge to over $100 billion. Facebook was the biggest IPO in Internet history, but some investors soon soured on the Menlo Park company.

The earnings posted by Facebook disappointed many analysts, and the company's stock price fell from its IPO price of $38 to just $17.55 by early September. A group of investors unhappy with the performance of their shares filed a lawsuit against Facebook and several of its senior executives as well as a number of financial companies involved in the IPO. The business litigation claimed that the social media giant had deceived investors by not divulging the impact that the use of mobile devices such as tablet computers and cellphones would likely have on the company's revenue.

The case was dismissed in February 2013 by the U.S. District Court for the Southern District of New York, but the plaintiffs filed an appeal. Their appeal was heard by a panel of judges on the U.S. Court of Appeals for the 2nd Circuit on July 24, and the dismissal was upheld by a unanimous vote. The judges said that the plaintiffs had no case because Facebook's alleged wrongdoing occurred well before the company offered its stock for public sale.

This case shows how plaintiffs sometimes charge ahead even when the legal ground their claims are based on is far from firm. Experienced business litigation attorneys will often urge disputing parties to make all reasonable efforts to resolve their differences amicably. Reaching a settlement will reduce legal costs for all concerned and avoid the uncertainty of court proceedings. However, when attempts to find a compromise are unsuccessful, attorneys may advocate vigorously on behalf of their clients in court.

Source: FOX Business, "Facebook Defeats Shareholder Litigation Over IPO", Reuters, July 24, 2015

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