Facebook stock climbs, but so do woes

Pre-market prices for Nasdaq stock, left, and Facebook stock are shown, Wednesday, May 23, 2012 at the Nasdaq MarketSite in New York. Facebook stock rose in early trading Wednesday, although still far below the $38 it was priced at before its initial public offering Friday. (AP Photo/Mark Lennihan)

Facebook stock climbs, but so do woes

Trading » Company faces lawsuits, regulatory probes over IPO.

By BARBARA ORTUTAY

| The Associated Press

Facebook stock climbs, but so do woes - New York • Facebook’s fourth day of trading as a public company saw an increase in the company’s stock price but also the rise of shareholder lawsuits related to the social network’s botched initial public offering.

Facebook Inc.’s stock climbed $1, or 3.2 percent, to close at $32 on Wednesday. But the gain was only a small reprieve for shareholders. The stock’s rocky inaugural trading day Friday was followed by a two-day decline. The stock is still trading nearly 16 percent below its $38 IPO price.

The initial public trading of Facebook’s stock was tarnished Friday morning by a half-hour delay, caused by glitches on the Nasdaq Stock Market. It was marred further this week as investors began accusing the banks that arranged the IPO of sharing important information about Facebook’s business prospects with some clients and not others.

Morgan Stanley, the lead underwriter, released a statement defending its handling of the IPO after the Massachusetts securities division subpoenaed the investment bank over its communications with clients. The Securities and Exchange Commission and the brokerage industry’s watchdog both said they may review the offering, and buyers of the stock have sued Facebook, Nasdaq OMX Group Inc. and the underwriters over the sale.

At question is whether analysts at the big underwriter investment banks cut their second-quarter and full-year forecasts for Facebook just before the IPO, and told only a handful of clients about it.

One suit, filed in U.S. District Court in New York, claims Facebook’s IPO documents contained untrue statements and omitted important facts, such as a "severe reduction in revenue growth" that Facebook was experiencing at the time of the offering. The suit’s three plaintiffs, who bought Facebook stock on its first day of trading May 18, claim they were damaged in the process.

Morgan Stanley declined to comment. Facebook said the lawsuit is without merit.

Another lawsuit, filed in San Mateo County Superior Court in California, holds Facebook and underwriters liable, claiming that Facebook’s IPO documents misled investors. Both suits seek class-action status on behalf of investors who bought Facebook stock on Friday and lost money.

"No one gets it perfect, as far as saying what the financial results are," said Anthony Michael Sabino, professor at John’s University’s Peter J. Tobin College of Business. The bottom line, he added, is whether Facebook or the underwriter had material information about Facebook’s finances that was not disclosed publicly.

"At this moment, it’s still too early to say," he said. "We don’t know enough, but this could turn out to be an issue."

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