An appeals court has ruled that shareholders cannot sue Facebook or Mark Zuckerberg in a case that accused the company of withholding key financial information from the public until after its IPO.
The shareholders alleged that Facebook had failed to share its projections for mobile ad sales prior to the offering, disclosing them only to analysts who then relayed the information to certain investors.
The plaintiffs complained that Facebook’s stock was “hammered” after it went public and the market learned of the lower forecasts. Facebook’s shares opened at just over US$42 on the Nasdaq on May 18, 2012, and fell to the low $30-range in the ensuing days. The stock has since risen strongly, trading at around $96 on Friday.
In his decision, Circuit Judge Dennis Jacobs said that because the shareholders weren’t owners of Facebook stock at the time the sales information wasn’t disclosed, they had no legal standing to sue.
In so-called derivative litigation, “a proper plaintiff must have acquired his or her stock in the corporation before the core of the allegedly wrongful conduct transpired,” the judge said, and none of the plaintiffs satisfied that requirement.
Geoffrey Johnson, an attorney for the plaintiffs, declined to comment.
Facebook spokeswoman Vanessa Chan said the company was pleased with the ruling.
The ruling affirms an earlier decision from the District Court in Manhattan, which dismissed plaintiffs’ claims partly on the same grounds. It also comes after the U.S. Securities and Exchange Commission dropped its own investigation into the matter roughly a year ago.
Facebook’s IPO was also marred by technical problems, and in April the Nasdaq paid $26.5 million to settle a class action lawsuit over a a glitch that delayed trade notices.
Facebook has since become successful in making money from ads on mobile devices, which is where the company makes the bulk of its revenue.