Facebook and NASDAQ Must Face IPO Lawsuits

(CN) - Facebook, CEO Mark Zuckerberg, dozens of banks and the NASDAQ must face class-action claims over the social media network's bungled $16 billion initial public offering last May, a federal judge ruled.

In one class action, investors claimed that Facebook misled them with its warning that higher mobile usage "may negatively affect" the company's revenue when profits were already down.

"Facebook was aware of the material negative impact on Facebook's revenues the company had suffered as a result of increasing mobile usage and the company's product decisions 10 days before the IPO," U.S. District Judge Robert Sweet in Manhattan wrote in the first of two rulings released this week.

"Plaintiffs have sufficiently pleaded material misrepresentation(s) that could have and did mislead investors regarding the company's future and current revenues," he later concluded in the 83-page ruling, dated Dec. 11 but released Wednesday.

On Monday, Sweet also refused to fully dismiss a $500 million lawsuit accusing the NASDAQ of screwing up the IPO when its technology failed in the early moments of the stock offering. As a result, investors said their buy and sell orders were not properly executed or confirmed on May 18, 2012, the day of Facebook's IPO.

Trading started at $38 per share, peaked at $45 on the first day and ended at $31.

Investors said NASDAQ had touted the reliability and capability of its technology despite pre-IPO testing that revealed serious system limitations.

"Once this testing revealed inadequacies and flaws in light of the upcoming largest IPO in NASDAQ history, NASDAQ had a duty to correct its prior statements as to its capabilities," Sweet wrote.

Instead, NASDAQ "continued making untrue statements," according to the 97-page ruling.

"Just as a misstatement a company's primary product affects an investors decision to purchase that stock, NASDAQ's failure to correct flawed information about its technology capabilities could have impacted plaintiffs' decision to participate in Facebook's offering and ability to trade during that offering," Sweet wrote.

He denied the NASDAQ's motion to dismiss claims stemming from early testing, but said immunity for self-regulatory organizations protects the exchange's decision not to halt trading.

The Securities and Exchange Commission fined NASDAQ $10 million this May for its role in the IPO fiasco, though it attributed part of the problem to the size of the IPO and the widespread interest in it.

Sweet is presiding over nationwide litigation stemming from the IPO.

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