Facebook founder Mark Zuckerberg has been sued by the social media network's shareholders over its disastrous IPO.
The lawsuit accuses Mr Zuckerberg, Facebook and several banks led by Morgan (KOSDAQ: 019990.KQ - news) Stanley (Berlin: SYC.BE - news) of hiding the company's weakened growth forecasts ahead of its $16bn initial public offering.
The defendants are claimed to have concealed from investors during the IPO marketing process "a severe and pronounced reduction" in Facebook revenue growth forecasts.
The news comes as Morgan Stanley (EUREX: DWDF.EX - news) , the bank in charge of the IPO, is being investigated over possible securites fraud.
The US bank has been accused of failing to warn smaller investors of a more negative assessment of Facebook's future profits.
It is claimed that several major investors had been pre-warned that a Morgan Stanley analyst had cut the amount of money he expected Facebook to make.
The advance notice allowed the investors to either avoid the stock completely or sell immediately after they floated at $38.
Facebook shares opened up 1.35pc at $31.42 on Wednesday. Within five minutes they were up 3.6pc. Prior to Wednesday they had fallen every day since the flotation last Friday, closing at $31 on Tuesday.
"The allegations, if true, are a matter of regulatory concern," said Rick Ketchum, the head of the Financial Industry Regulatory Authority.
Mary Schapiro, head of the Securities and Exchange Commission, said: “There is a lot of reason to have confidence in our markets and the integrity of how they operate, but there are issues we need to look at specifically with regard to Facebook.”
It was reported that Morgan Stanley analyst Scott Devitt cut his estimate for Facebook’s revenue this year to $4.85bn (£3.1bn) from a previous figure of more than $5bn, adding that the business faced multiple problems.
He claimed that growth in revenues could be hit by the increase in the use of mobile devices to look at Facebook, a medium the company’s advertising system has so far failed to crack.
William Gavin, the securities regulator for Massachusetts, issued the bank with subpoenas.
It comes amid accusations Morgan Stanley valued Facebook too aggressively.
"If the goal of the underwriters was not to leave a penny on the table, then it was a success," said Brian Wieser, an analyst at Pivotal Reserch Group. "But if it was to ensure that the shares had a favourable market to trade in, then it wasn't."
"What they [the underwriters] succeeded in doing was milking market sentiment," said Andrew Caldwell, a valuations partner at BDO. "You've got a problem that if you price it high, you've got nowhere else to go."
As the shares started to fall after the float last Friday, Morgan Stanley was forced buy up stock to support the company's value above the $38 listing price. The shares hit the float price a number of times during the day's trade, but didn't fall through it.
The slump has left some unsurprised. "We find Facebook's current valuation unappealing," said Richard Greenfield, an analyst at BTIG, said. Many analysts have not issued research on the company as they were involved in its IPO.
Although Morgan Stanley has not revealed how much it spent propping up the share price it is possible that the mis-pricing could have wiped out almost all of the banks fees from the deal.
The investment bank, as the lead underwriter, is likely to have received the lion's share of the $176m (£111m) in fees bankers charged for the float. However, 33 Wall Street banks were also in on the listing including JPMorgan and Goldman Sachs (NYSE: GS - news) .
Morgan Stanley said IPO procedures used were “in compliance with all applicable regulations”.
“After Facebook released a revised S-1 [IPO] filing on May 9 providing additional guidance with respect to business trends, a copy of the amendment was forwarded to all of MS’s institutional and retail investors and the amendment was widely publicised in the press at the time,” the bank said.
“In response to the information about business trends, a significant number of research analysts in the syndicate who were participating in investor education reduced their earnings views to reflect their estimate of the impact of the new information. These revised views were taken into account in the pricing of the IPO.“
Nasdaq (Nasdaq: ^NDX - news) was also left with egg on its face after technical glitches delayed the start of trade in the biggest IPO the bourse has ever seen. The exchange has earmarked $13m to cover bad trades, which it blames on faulty software

http://uk.finance.yahoo.com/news/facebook-founder-mark-zuckerberg-sued-134310813.html

u na still dey buy the share saw this on yahoo page

And They Say Crime Doesn't Pay!!!

^^^financial crime without carrying a gun or knife does truly pay.
Unfortunately some 'muguns' have been scammed off their money.
A fool and his money are soon easily parted.

apart from bringing man and woman together,man and man together,apart from tearing up marriages,what goods or services that are durable does FB involve themselves in,warned my brother not to buyy but he no listen now he is close to going crazy

bandiejay:
http://uk.finance.yahoo.com/news/facebook-founder-mark-zuckerberg-sued-134310813.html

u na still dey buy the share saw this on yahoo page

It's only a week. Cmon give the company a break. As the investors all know, putting funds into stocks is never guaranteed.

This is wat Fela Anikulapo(Abami Eda) of blesseth memory called head robbery.Stealing by pen and brain

milehigh06: apart from bringing man and woman together,man and man together,apart from tearing up marriages,[b]what goods or services that are durable does FB involve themselves in,[/b]warned my brother not to buyy but he no listen now he is close to going crazy

This is what has always bothered me about the whole thing. The only conceivable ways they can make money are

1) Selling people's info to 3rd parties

2) Advertisement.

The former they swear they don't do and the latter. . .well let's just some companies are finding out that advertising on FB hasn't increased their sales and are pulling out.

So tell me. . .what exactly does FB bring to the table??

Hahahahahahaha I laff in Bendel... Where is hi5 and Myspace today

Two words - Insider Trading.

Like I read it this morning, many small buyers lost about 1/3rd of the value of their shares, bad news.

odiaero: Well, i hope it goes up so that i can pullout, it is always good to invest what u can afford to lose

Pull out and go where? How much did you buy at? If I were you, I will pull out as soon as I can because like the Washington Express stated this morning, SEC, Justice Dept, as well as three other regulatory agencies are about to launch intensive in-depth investigations into the issue. Should they find evidence of wrong doing, that's another story altogether. Now you know due to the amount of information that was witheld from the public, public trust has diminished, and several folks are weary about FB even before they went public let alone now. One of the few thing that might restore their confidence is the investigation exonerating them from wrongdoing, should that fail, FB will take further hit.

Muhehehe

QUOTE FROM THAT LOQUACIOUS HE-GOAT CALLED AFAM4EVA

Must they produce bags of rice like dangote before you know that they have a product? See MUMU.

Do you mean a website that is has a net worth of over $86 Billion?

blink182: Muhehehe

which kian laff be this?

bandiejay:

which kian laff be this?

I just de laugh, I no know if people think say yeye dot coms no de exist again. I thought the people buying were doing so for efeezy didn't know they were hoping to make money.

Warning to those who want to buy shares in Nairaland. People don't seem to realise that building a successful business is loads of work. They wanted to reap the benefits from a place they have not been involved with for a considerable amount of time. Sorry for the disappointment, it was all razzmatazz. I am sure Google is smiling with a not-so-evil grin.

What id..iots would invest in something that is simply a website for mo.rons to tell other mo.rons what they are doing today? That cant be worth much, can it?

bet the winklevoss brothers are laughing........what a mess.

maclatunji: Warning to those who want to buy shares in Nairaland. People don't seem to realise that building a successful business is loads of work. They wanted to reap the benefits from a place they have not been involved with for a considerable amount of time. Sorry for the disappointment, it was all razzmatazz. I am sure Google is smiling with a not-so-evil grin.

Nairaland ke, any company that does not offer a service or product that requires repeat purchase from customers is a no go area.

On a scale of 1:1, zynga games makes by far more money than facebook, in other words, I can comfortably buy their shares.

How can a company which currently doesn't generate revenues (let alone astronomical ones) or even free cash flows be expected to sustain such share price as it was during the IPO. A security is only worth it's discounted future cash flows, in the case of Facebook over a million user base doesn't translate to over a million dollars in revenues. Ask google.

Ha, ha, ha. it really is an absolute pleasure to see Facebook and the clowns who invested in it on the slide. Facebook and Twitter magnify everything wrong with human nature- from neediness to narcisissim. Hopefully it represents the beginning of the decline of social networking

jadesola7: Ha, ha, ha. it really is an absolute pleasure to see Facebook and the clowns who invested in it on the slide. Facebook and Twitter magnify everything wrong with human nature- from neediness to narcisissim. Hopefully it represents the beginning of the decline of social networking

Okay, you don't like social networking, what do you like?

No offense to anyone but I do think that a lot of yall in here did not understand the concept of FB other than social media. I'm no supporter of FB, I don't even use FB that much aka very light user, however, I'll say the truth when I will. Although some investors goofed, thanks to Morgan Stanley and FB, however, FB was unique in its presentation. So many of you say they did not generate revenues, like really?

The ads on you FB page, do you think it's free? Just like Java claims to run on just about 1billion devices as a programming platform, so does FB app and related services run on major personal electronics, Phones, tablets, TV, gaming systems, etc. You think to obtain the license if free? Come on people, let's be honest to ourselves. Someone mentioned ZYNGA, Zynga does online games which runs on FB platform, why did you think Zynga Corp did that? Or you think the games you play for free is not being paid by someone? Zynga is just using Google ad type system generating revenue for FB.

The only reason why a lot of folks think that FB wasn't making money was that it was a "Private" company, had it been public, you would have seen that indeed generated revenues like Google and Yahoo does.

manny4life: No offense to anyone but I do think that a lot of yall in here did not understand the concept of FB other than social media. I'm no supporter of FB, I don't even use FB that much aka very light user, however, I'll say the truth when I will. Although some investors goofed, thanks to Morgan Stanley and FB, however, FB was unique in its presentation. So many of you say they did not generate revenues, like really?

The ads on you FB page, do you think it's free? Just like Java claims to run on just about 1billion devices as a programming platform, so does FB app and related services run on major personal electronics, Phones, tablets, TV, gaming systems, etc. You think to obtain the license if free? Come on people, let's be honest to ourselves. Someone mentioned ZYNGA, Zynga does online games which runs on FB platform, why did you think Zynga Corp did that? Or you think the games you play for free is not being paid by someone? Zynga is just using Google ad type system generating revenue for FB.

The only reason why a lot of folks think that FB wasn't making money was that it was a "Private" company, had it been public, you would have seen that indeed generated revenues like Google and Yahoo does.

Nonetheless, the company has goofed with this IPO fiasco. Even me that was not remotely close to buying Facebook shares plan to make big money from it. Africa in general and Nigeria in particular is proving to be the next ICT goldmine and by God's grace me self go chop there. In short, I get your drift.

Manny, for a coy to really survive it needs not only generate revenue but profit and free cash. Apart from google no other Internet coy is really making it big in ad revenues, not even yahoo! And I don't think the add revenues (which by the way is the only current anticipated source) of FB revenues can sustain operations for a now 'public' Facebook and also pay dividend. I just don't see it happening. They need to change their biz model or start charging us per hour on FB or selling apps to us- that also I don't see happening.

Mai-suya:
Manny, for a coy to really survive it needs not only generate revenue but profit and free cash. Apart from google no other Internet coy is really making it big in ad revenues, not even yahoo! And I don't think the add revenues (which by the way is the only current anticipated source) of FB revenues can sustain operations for a now 'public' Facebook and also pay dividend. I just don't see it happening. They need to change their biz model or start charging us per hour on FB or selling apps to us- that also I don't see happening.

As long as they have Africans and Nigerians, they have hope. Don't be fooled O, advertising is a big revenue earner. Do you know how much telecoms companies spend on adverts in Nigeria? The major threat to Facebook is that people are getting bored with it and are likely to move-on to other platforms soon. Watchout for Twitter to make a move soon.

Google has the best model, some people blog they go to blogger, some people watch videos they go to Youtube, we all need mail they gave us Gmail, we like to chat, they gave us Gtalk, smart phones are it- they are coming out soon with killer phones from their new baby Motorola, there is Adsense which Seun loves so much and of course Adwords. Too much revenue and diversification from Google- I almost forgot Android OS and its Playstore.

Typing this makes me green with envy at the brilliance of the guys at Google- their brain is there.

manny4life: No offense to anyone but I do think that a lot of yall in here did not understand the concept of FB other than social media. I'm no supporter of FB, I don't even use FB that much aka very light user, however, I'll say the truth when I will. Although some investors goofed, thanks to Morgan Stanley and FB, however, FB was unique in its presentation. So many of you say they did not generate revenues, like really?

The ads on you FB page, do you think it's free? Just like Java claims to run on just about 1billion devices as a programming platform, so does FB app and related services run on major personal electronics, Phones, tablets, TV, gaming systems, etc. You think to obtain the license if free? Come on people, let's be honest to ourselves. Someone mentioned ZYNGA, Zynga does online games which runs on FB platform, why did you think Zynga Corp did that? Or you think the games you play for free is not being paid by someone? Zynga is just using Google ad type system generating revenue for FB.

The only reason why a lot of folks think that FB wasn't making money was that it was a "Private" company, had it been public, you would have seen that indeed generated revenues like Google and Yahoo does.

I mentioned that. Zynga makes far more money from users than facebook does from it, Zynga is also on Yahoo, Orkut, Google+ etc. Zynga makes money well, their games have addicted users who spend up to a thousand dollars monthly trying to upgrade faster, the Japanese government had to interfere in a similar Japanese company last month as kids spending on it were spiraling out of control.

What I am trying to say is that they have a product they sell unlike the peanuts that come from Facebook adds that people may decide to click or not. On the other hand, Zynga strives to get you hooked. Nairalanders who have played their games know what I am talking about. There is a big difference.

Mai-suya:
Manny, for a coy to really survive it needs not only generate revenue but profit and free cash. Apart from google no other Internet coy is really making it big in ad revenues, not even yahoo! And I don't think the add revenues (which by the way is the only current anticipated source) of FB revenues can sustain operations for a now 'public' Facebook and also pay dividend. I just don't see it happening. They need to change their biz model or start charging us per hour on FB or selling apps to us- that also I don't see happening.

You guys are missing my argument, FB is not making money from ad, but ad being one of its component. FB just like Google was trying to diversify, ads component WAS NOT the major generator of their revenues.

@blink, I was only saying that Zynga is making money just. I know Zynga games runs on every other platform as well, but Zynga reportedly admitted that they had greater greater reach from FB users combined than most other social network. Just don't forget that FB has a potential of almost 1billion users, even Google doesn't. So my point is thatFB just like Zynga has greater revenue potential as opposed to others like Yahoo and Google+

If anyone knew of several press briefings from Facebook, they're not trying to reinvent the wheel but DIVERSIFY the wheel like Google does that is why they went public. One of recent purchases was Instagram, I hope you guys get my point, it's not about ads, even FB said they weren't making enough from ads, even Google admitted same thing that's why they had to synchronize all their platforms together on March 21, a one stop shop so they can gather info about consumer searchers and behavior and tailor ads to their needs.

odiaero: Well, i hope it goes up so that i can pullout, it is always good to invest what u can afford to lose

why are you always boasting? When will you grow up ? This is 21st century.

maclatunji:

As long as they have Africans and Nigerians, they have hope. Don't be fooled O, advertising is a big revenue earner. Do you know how much telecoms companies spend on adverts in Nigeria? The major threat to Facebook is that people are getting bored with it and are likely to move-on to other platforms soon. Watchout for Twitter to make a move soon.

Google has the best model, some people blog they go to blogger, some people watch videos they go to Youtube, we all need mail they gave us Gmail, we like to chat, they gave us Gtalk, smart phones are it- they are coming out soon with killer phones from their new baby Motorola, there is Adsense which Seun loves so much and of course Adwords. Too much revenue and diversification from Google- I almost forgot Android OS and its Playstore.

Typing this makes me green with envy at the brilliance of the guys at Google- their brain is there.

LMFAO!!!

China can tell them a thing or two about that.

ZUBY77:

why are you always boasting? When will you grow up ? This is 21st century.

How is his statement boastful?

General Motors pulls annual $10 million worth of ads from Facebook

A GM executive says paid advertising is ineffective on the social network

General Motors has announced that it would be pulling its paid advertising from Facebook, saying that it had too little impact. The announcement could not come at a worse time for the social media giant, which is expected to file its initial public offering on Friday.

The newspaper reported that GM spends $40 million annually to maintain a presence on Facebook, with a quarter of that in paid advertising.

Industry analysts have recently reported that companies are beginning to re-evaluate social media-based advertising.

“Companies in industries from consumer electronics to financial services tell us they’re no longer sure Facebook is the best place to dedicate their social marketing budget—a shocking fact given the site’s dominance among users,” wrote Melissa Parrish, a Forrester analyst, on Monday.

This week, the company raised its target price range to $34 to $38 per share. That's up from $28 to $35 per share, where it had been as of earlier this month.

UPDATE: Daniel Knapp, an analyst at IHS Screen Digest wrote to Ars to say: "I don't see a causal relationship between GM's decision to stop advertising and Facebook and the imminent Facebook IPO. It would be naive to panic about GM's decision to pull out of Facebook advertising. If any investor sees this as a bad omen, it means they did not do their homework."
(Me: Bwahahahahahahahaha. . .if only people had followed the flashing neon sign that said STOP! DON'T BAD IDEA!! They won't be suing today )


He added: "Advertising on Facebook has long been funded by marketing budgets reserved for trying new things. But as online advertising investments in general are surging and starting to cannibalize spend on legacy media, advertisers are rightfully asking whether the money spend is justified because it has reached significant sums now. And here the irony starts: Facebook produces data on ad campaigns in a detail that advertising executives could only dream of only a decade ago. But more data does not necessarily mean better data.

The advertising measurement in TV is much simpler than online on Facebook, but players have agreed what those metrics mean. Facebook has shaken up the advertising world by changing the relationship between brand and consumer fundamentally. We do not have a one-sided street anymore. But how to capitalize on this marketing revolution long-term, how to define new metrics and get industry-wide acceptance for it is another story. It is a [laborious] task. I don't say it is not possible, but there is a long road to go."

http://arstechnica.com/business/2012/05/general-motors-pulls-annual-10-million-worth-of-ads-from-facebook/


Seriously, if we took a count on how many people click on an AD while updating their status on facebook. . .I'm bet they won't be up to 1000