Facebook is reportedly facing litigation involving allegations that the company misled investors about its future growth prior to its initial public offering back in 2012. For those unfamiliar with the term, initial public offering refers to a company’s first sale of stock, changing it to a publicly traded company.
The shareholders pushing the litigation say that the company hid its own projections of the company’s future growth, particularly with respect to the impact of mobile devices, while asking securities underwriters to reduce estimates of the company’s future value.
Facebook has attempted to have the lawsuits dismissed, saying that there is no merit to the allegations and that the class certifications go against established legal precedent. For one thing, the company claims that shareholders were aware of the likely impact of mobile usage on revenue.
For investors, IPOs can be risky since there is often little to go on in terms of a company’s past performance and changes in the company make it difficult to predict the company’s future value. Facebook had been up and running for a handful of years before going public. At this point, two shareholder class actions against Facebook have been certified.
The decision to go public is a big one, and it is important for privately held businesses to engage in careful preparation before moving forward. As the litigation against Facebook demonstrates, mistakes in the process can lead to legal liabilities down the road. In our next post, we’ll look a bit at what may have gone wrong with Facebook’s IPO and how an experienced attorney can help businesses navigate the process.