Monday 19 February 2018

Facebook to face class action lawsuits over claims it inflated share price

Key Facebook executives in Ireland have made millions from the share spike
Key Facebook executives in Ireland have made millions from the share spike

James Titcomb

Two class action lawsuits alleging that Facebook inflated its share price ahead of the company's 2012 stock market flotation have been given clearance to proceed in the US.

The investors claim that Facebook failed to disclose concerns about growth ahead of its $100bn IPO, at the time the biggest ever for a technology company. In the months after the float, Facebook shares halved amid concerns about mobile advertising, with many investors feeling duped.

Shares have since recovered, but some investors have continued to claim that the projections given by Facebook when it went public ignored fears that existed at the time, leading to them overpaying for shares. The company floated at $38 a share in May 2012, and fell below $18 in September as the company revealed how more people were using Facebook on mobile devices, which was seen as more difficult to show adverts on than PCs.

Shares now sit at $107 and mobile advertising accounts for 78 per cent of all ad revenue.

In a decision published on Tuesday, US District Judge Robert Sweet said that two class action lawsuits - one for institutional investors and one for retail shareholders - may proceed.

He said that Facebook had provided "an impressive amount of evidence" to show that investors were made aware of the risks from smartphone growth, but rejected the company's argument that claims should be pursued on a case-by-case basis.

Facebook says the claims are "without merit" and is appealing the decision. It says the idea that investors' knowledge of the situation could be understood on a group basis "flouts due process".

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