Full disclosh: Facebook to pay shareholders $35m over IPO non-disclosure claims

Settlement in long-running case now pocket change for the Zuckerborg

Facebook and its top execs have agreed to pay out $35m to get shareholders off their case over allegations the biz knew mobile use was affecting ad revenue before it went public in 2012.

The company filed its initial public offering on May 17, 2012, when it sold more than 421 million shares at $38 per share, raising some $16bn from investors.

However, share prices soon fell amid widespread reports that the biz had quietly cut its revenue estimates with banks but not told the general public. Prices eventually hit a low of $19.71 in August - almost half of its IPO figure.

The IPOcalypse spawned multiple lawsuits against Facebook and its execs, along with the banks that helped it onto the market, including Morgan Stanley, Goldman Sachs and Merrill Lynch.

By 2015, many of these shareholders were given the go-ahead to bring one class action case against Zuckerberg et al, which was led by the Arkansas Teacher Retirement System and Fresno County Employees Retirement Association.

Their claims alleged that Facebook knew before it went public that an increased use of mobile phones had negatively affected its advertising business, but failed to disclose this.

The shareholders said that - despite Facebook cutting its revenue estimates for both the second quarter of 2012 (the quarter in which it IPO'd) and the full year - the biz only filed an amended registration statement saying mobile usage “may” impact the company’s revenues.

They also pointed to the slump in the price of Facebook’s shares after news reports were published in the days immediately after the IPO as evidence that they had paid over the odds because of a lack of information.

A trial hearing was due yesterday, but instead the parties filed a settlement agreement with the New York Southern District Court in Manhattan. This said that defendants would pay the claimants $35m in cash in exchange for them dropping their claims.

The price is a mere drop in the ocean for Facebook these days, with the company currently valued at $537.22bn, and a share price of $184.93.

However, court documents said that the plaintiffs found the deal to be “fair, reasonable, and adequate”. The filing said that they had chosen to settle based on the “substantial certain cash benefit”, compared with the risk and delays of further litigation.

This included weighing up the potential that there might be less, or no, cash offered at the end of the trial, as well as noting that Facebook could well keep pushing for appeal after appeal.

“This process could last several additional years,” the document stated.

Meanwhile, the document noted that the defendants continue “to deny all allegations of wrongdoing or liability whatsoever”, but that they had settled “to eliminate the uncertainty, burden and expense of further protracted litigation”.

District Judge Sweet gave preliminary approval of the settlement, and set a hearing date for the final approval for September 5, 2018. ®