Factbox: Facebook IPO and Legal Arguments Ahead
Facebook’s initial public offering has sparked lawsuits and investigations after a botched trading debut on the Nasdaq stock market delayed the completion of many orders and questions arose about selective disclosures of the company’s financial prospects.
Facebook’s shares closed on Monday at $28.84, leaving investors who bought at the $38 IPO price with losses of 24.1 percent.
U.S. law and regulations on IPOs and disclosure are complex and harbor many gray areas. Following are some of the laws and rules that may play a role in the outcome of this increasingly tangled affair.
A key provision that may be at issue is Section 12 (a)(2) of the U.S. Securities Act of 1933. The section holds liable any person who offers or sells a security by means of a prospectus or oral communication that includes an untrue statement of a material fact or fails to state an essential material fact.
Analysts working for underwriters cut their revenue and earnings forecasts for Facebook following advice from the company, according to people with direct knowledge of the matter.
This could constitute a basis for liability under this provision. It would require establishing that disclosures in the prospectus — which were selectively communicated to some major investors — were rendered misleading as a result of such information being omitted in the documentat