- Shares of the social media giant have dropped 30 percent to below $27
- Lawsuit says Zuckerberg’s notice he was dumping 30.2 million shares of Facebook on the first day of the IPO is proof of their claims
- Previous lawsuit says the banks knew Facebook revenues would fall short of expectations but only told a few major investors
PUBLISHED: 14:00 EST, 4 June 2012 | UPDATED: 14:08 EST, 4 June 2012
Facebook’s botched Initial Public Offering has drawn yet another lawsuit as angry investors are claiming Mark Zuckerberg knew his company’s stock price would tank and sold out $1.1 billion-worth before shares slumped.
The class-action says Zuckerberg, along with other Facebook executives and the banks behind the IPO, had inside information that the social media giant was over-valued, but didn’t tell the public.
This allowed the stock to open at more than $38 a share. The price immediately dropped precipitously in the days after the May 18 IPO. By Monday afternoon, it had fallen 30 percent, to less than $27 a share.
Analyst firm Bernstein projected Facebook had to fall another $2, to $25, before the company would reach its true value.
Such is the anger over Facebook’s IPO, the most anticipated in decades, that some critics are claiming it was a ‘pump-and-dump’ operation — where the owners of a stock deliberately inflate the value based on false information and then cash out before the price collapses.
Others have coined a new word to describe their financial state after Zuckerberg’s social media giant went public — ‘zucked.’
TMZ reports the new lawsuit, the second in two weeks, names Zuckerberg, along with Morgan Stanley, JPMorgan and Goldman Sachs.
As evidence of Zuckerberg’s knowledge, the plaintiffs cite the Facebook founder’s disclosure filings that lists 30.2 million shares of the company he sold right after the stock went public.
The sale, at $38 a share, netted him $1.13 billion. If he sold the shares today, they would be worth $800 million.
Other big-time Facebook investors, who got in on the company before the IPO, raked in hundreds of millions of dollars from dumping off their stock at $38 a share.
The new lawsuit is similar to ones filed within days of the IPO, alleging that top executives knew their stock was going to tank after initial trading.
Those suits say Facebook warned the banks behind its IPO that the company would fall short of its expected revenue for the second quarter.
The banks knew this information, even as Facebook was selling its $16 billion stock offering to the public, the plaintiffs allege.
Instead of coming clean with the damaging news, according to the lawsuits banks like Morgan Stanley shared it only with big investors — allowing them to stay away from the stock until the price dropped to reflect the lower earnings.
Facebook has previously strongly denied the allegations. Morgan Stanley has said it did nothing during the Facebook IPO that it wouldn’t have done for any other company’s stock offering.