Unfriendly Fire: Shareholders Sue Facebook, Morgan Stanley
Facebook (NASDAQ:FB) and lead underwriter Morgan Stanley (NYSE:MS) were reportedly hit with another shareholder lawsuit on Wednesday over the social network’s controversial initial public offering.
The latest lawsuit comes even as Facebook’s shares looked to end their two-day plunge amid a pair of conflicting analyst notes on the company’s valuation.
Facebook shares were recently up 3.50% to $32.21.
According to Reuters, Facebook shareholders filed suit against the social network and banks including Morgan Stanley on Wednesday in U.S. District Court in Manhattan, alleging the defendants concealed a weakened growth forecast prior to the high-profile IPO.
Research analysts at several underwriters slashed their revenue forecasts for Facebook during the IPO marketing process, but “selectively disclosed” the new guidance to just “certain preferred investors” instead of the public generally, the suit said, Reuters reported.
“We believe the lawsuit is without merit and will defend ourselves vigorously," a Facebook spokesperson told FOX Business.
The lawsuit comes a day after a separate civil lawsuit was filed against Facebook, co-founder and CEO Mark Zuckerberg and underwriters alleging violations of securities laws. Nasdaq OMX Group (NASDAQ:NDAQ) was also sued on Tuesday over trading glitches that impacted the Facebook IPO, which raised $16 billion on Friday.
According to a Reuters report on Tuesday, Morgan Stanley told major clients its consumer Internet analyst was reducing his second quarter and 2012 revenue forecast on Facebook during the IPO roadshow.
Fellow underwriters JPMorgan Chase (NYSE:JPM) and Goldman Sachs (NYSE:GS) also cut their forecasts on Facebook even as the syndicate raised the IPO size and price.
The slew of lawsuits comes as Facebook’s shares have tumbled more than 18% below their IPO price amid worries the offering overvalued the world’s largest social network.
“The value of Facebook common stock has declined substantially and plaintiffs and the class have sustained damages as a result," the lawsuit filed on Wednesday said, according to Reuters.
Shares of Morgan Stanley slumped 2.40% to $12.99, while Goldman slipped 1.36% to $96.20 and JPMorgan fell 1.73% to $33.42.
In the face of the litigation, analysts at Needham Research initiated coverage of Facebook with a “buy” rating, setting a $40 price target and calling the stock “an option on the world,” Dow Jones Newswires reported.
That price target implies a 28.6% return based on Tuesday’s close of $31.11.
By establishing a brand and becoming relevant online, Facebook “has already solved the two hardest execution risks,” Laura Martin, the Needham analyst, wrote.
On the other hand, analysts at S&P Capital IQ, which is a division of McGraw-Hill (NYSE:MHP), kicked off coverage of Facebook with a rare “sell” rating and set a price target of $30.
Meanwhile, analysts at Deutsche Bank (NYSE:DB) downgraded Nasdaq to “hold” from “buy,” due in part to “uncertainty around the glitch” in the Facebook IPO, Dow Jones reported. Shares of Nasdaq retreated 3.72% to $21.50.
Sources told FOX Business's Charles Gasparino that Nasdaq CEO Bob Greifeld apologized to Morgan Stanley over the handling of the Facebook IPO.