REDWOOD CITY, Calif. (CN) – “‘Pretending that Facebook will have an independent board … is like putting rouge on a corpse,'” begins the shareholder derivative action against Facebook co-creator Mark Zuckerberg and others.
Shareholder Hal Hubuschman sued Mark Zuckerberg, Chief Financial Officer David Ebersman, and “certain members of its board of directors (the “board”) and certain of its executive officers,” on behalf of Facebook, Inc., in San Mateo County Court.
The shareholder derivative action requests a return of what plaintiff claims was lost by defendants’ breach of fiduciary duty, waste of corporate assets and unjust enrichment, plus declaratory relief to prevent a repeat or similar situation.
Plaintiff alleges that Zuckerberg, Peter Thiel and James Breyer benefited from withholding information from the Securities and Exchange Commission Registration Statement that the company was worth less because increased use of its website through mobile devices was causing a “serious reduction in revenue growth,” since “advertising was not as effective on mobile devices as it was on a traditional personal computer, therefore alienating Facebook’s customer-base.
“This negative trend … was so serious that, during a road show preceding Facebook’s IPO, its lead underwriters- Morgan Stanley & Co. LLC, (“Morgan Stanley), JPMorgan Securities LLC (“JPMorgan”), and Goldman Sachs & Co. (“Goldman Sachs”) all reduced their revenue forecasts for the company. This highly unusual move was not made available to the market in general, but was selectively disclosed to certain of the underwriters’ large investor clients, thereby keeping the public in the dark.”
“These improper statements have devastated Facebook’s credibility as reflected by the company’s $15.3 billion, or nearly 20 percent, market capitalization loss,” continues the complaint. The company also faces eight class actions for violations of federal securities laws, as a result, the complaint states.
The lead plaintiff alleges that, while in possession of material, non-public information concerning Facebook’s true business health: Zuckerberg sold 30.2 million shares of his stock for $1 billion; Thiel directed his companies, Founders Fund and Rivendell, to sell 16.8 million shares of Facebook stock for $633 million; and Breyer directed Accel Partners to sell 57.7 million shares of its Facebook stock for $2.1 billion in proceeds.
Other defendants are: David Ebersman; Sheryl Sandberg; David Spillane; Marc Andreessen, Donald Graham; Reed Hastings; Erskine Bowles, and Facebook, Inc., as a nominal defendant.
Plaintiff is represented by Brian Robbins of Robbins Umeda LLC in San Diego, Calif., and Michael Fistel Jr. of Holzer & Fistel LLC in Atlanta.