In our last post, we mentioned that social media giant Facebook is currently facing shareholder litigation based on allegations that the company misled investors regarding the impact of mobile devices on its future growth. As we noted last time, Facebook is attempting to have two class certifications dismissed on the grounds that investors were aware of the risk.
In the case of Facebook, the transfer from privately held to publicly traded was not a smooth one. The general agreement is that the IPO was a disaster, but there were also questions early on as to whether the company and the banks handling underwriting for the IPO withheld information that should have been turned over to the public. To have done so would be illegal, since business going through an IPO are prohibited from sharing information with underwriters that is not shared with the public.
It remains to be seen what will come of the litigation against Facebook, and the litigation itself is only in its early stages. Still, it is a reminder of the risks involved in not going about an IPO with adequate preparation. Before initiating the process, business must do their due diligence and plan carefully around a number of issues, including timing, valuation, regulatory filings.
Working with an experienced attorney on these matters can help ensure the best possible preparation and reduce the possibility of liabilities stemming from an IPO. This, in turn, will help ensure a smooth transition to publically traded and get a business off on the right foot to a successful future. In cases where liabilities do arise, experienced legal counsel can help protect a business’ legal rights and interests.
Source: Marketwatch, “Facebook IPO controversy in a legal gray area,” Bejanmin Pimentel, May 25, 2012.