Facebook investors have filed a class action lawsuit against Mark Zuckerberg, Facebook CEO, alleging that he had inside information that the stock was overvalued and that he protected his financial interests by unloading Facebook shares worth $1 billion.
According to MyFoxny.com, the suit alleges that Zuckerberg knew that the shares were valued too high and that he dumped them as the price dropped following the IPO.
TMZ reports that the lawsuit claims that Zuckerberg and his associates knew that there was not enough advertising revenue to support a $38 per share stock valuation. According to The Inquisitr, they hid the information in order to push up the share price for the initial public offering.
TMZ reports the lawsuit claims that Morgan Stanely, JPMorgan, and Goldman Sachs raised alarm before the IPO that Facebook was grossly overvalued, but the vital information was disclosed selectively to large investors. According to NY Post, many analysts had expressed doubts about Facebook's valuation and its ability to compete with Google Inc.
WebProNews reports this is not the first time Zuckerberg has been sued after Facebook went public. A week after the IPO, Facebook was sued for hiding "unfavorable growth forecasts."
According to NY Post, Facebook closed on Friday at $27.72 a share, going down 27 percent since going public. MyFoxny.com reports that Facebook shares have, since Friday, fallen further by nearly 3 percent. In recent trading, Facebook stock went down 2.8 percent at $26.96.
WebProNews reports that former Wall Street analyst Henry Blodget, speaking on behalf of investors, called Zuckerberg's alleged insider trading "unfair." He said: “This is an absurd and unfair practice. The estimates themselves are material information–the consensus of smart, well-trained analysts who have worked with the company’s management to develop realistic forecasts. Most investors don’t even know that these estimates exist, let alone that they’re whispered verbally to only a handful of big investors. All potential investors should have easy access to these estimates, as well as to any logic underlying them. The SEC needs to change the rules here.”
NY Post reports that after problems with Facebook's IPO, questions are being raised whether companies going public for the first time should list with Nasdaq. According to NY Post, an analyst said: “There’s no question, this Facebook situation has put on the table the question of Nasdaq’s market structure and its market quality."
NY Post also reports that Facebook is developing technology that will allow under-13s to use the social-networking site under parental supervision. Procedures being tested include connecting children's accounts to their parents' and other controls that would empower parents to decide who their kids can accept as "friends" and what applications they can use.