A federal appeals court has upheld the dismissal of litigation by Facebook Inc
By a 3-0 vote, the 2nd U.S. Circuit Court of Appeals on Friday said the plaintiffs could not prevail because they failed to show they owned Facebook stock at the time of the alleged misconduct, which predated the $16 billion IPO.
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The decision affirmed the February 2013 dismissal of the case by U.S. District Judge Robert Sweet in Manhattan.
Lawyers for the plaintiffs did not immediately respond to requests for comment. Andrew Clubok, a lawyer for the defendants, declined to comment.
Many lawsuits were filed against Facebook as the Menlo Park, California-based company, which went public at $38 per share, saw its share price fall as low as $17.55 by Sept. 4, 2012.
In the case decided on Friday, shareholders alleged that Facebook should have disclosed its internal projections on how increased mobile usage might reduce future revenue.
Writing for the appeals court, however, Circuit Judge Dennis Jacobs said that because Facebook made its disclosures before going public, shareholders could not have contemporaneously owned its stock, and thus could not sue its directors and underwriters.
"A proper plaintiff must have acquired his or her stock in the corporation before the core of the allegedly wrongful conduct transpired," he wrote.
Among the other defendants were Facebook Chief Operating Officer Sheryl Sandberg, lead underwriter Morgan Stanley
The case is In re: Facebook Inc Initial Public Offering Derivative Litigation, 2nd U.S. Circuit Court of Appeals, Nos. 14-632, 14-1309, 14-1445, 14-1784 and 14-1788.
(Reporting by Jonathan Stempel in New York; Editing by Chizu Nomiyama and Bernadette Baum)