Facebook accused of misleading investors

Mark Zuckerberg and the other directors of Facebook have been slapped with a lawsuit claiming they defrauded investors in the company's $104bn (£66.29bn) stock market float last week.

The suit – which also names Morgan Stanley, Barclays, Goldman Sachs and other banks who underwrote the flotation as defendants – follows allegations that at least one Facebook executive gave secret guidance to select analysts, thereby leading them to cut their forecasts for advertising revenues at the social network.

The secret guidance came in the final days of the investor roadshow, when Facebook and Morgan Stanley were seeking buyers for the $19bn of shares being sold by the company and its early investors, including Mr Zuckerberg himself.

The resultant reduced forecasts were only made available to a small number of large institutional investors, while other buyers in the flotation were kept in the dark, it is alleged.

The lawsuit was filed on behalf of three investors who bought shares at the initial public offering (IPO) price of $38, and the law firm behind the complaint expects it to become a class action on behalf of every investor who signed up to the float.

Facebook's prospectus failed to reveal full details about the speed with which advertising revenues were falling behind expectations, the complaint says.

"The true facts at the time of the IPO were that Facebook was then experiencing a severe and pronounced reduction in revenue growth due to an increase of users of its Facebook app or website through mobile devices rather than a traditional PC, such that the company told the underwriter defendants to materially lower their revenue forecasts for 2012," it alleges.

Facebook shares have slumped around 15 per cent in value since they began trading on the Nasdaq stock market on Friday morning, as news of the analysts' downgrades spread – although there was some respite from the selling yesterday, when the stock had clawed back $1 to trade at $32 by lunchtime in New York.

Morgan Stanley, whose analysts were among those to cut their forecasts, said the forecast reductions were triggered by public comments in a revised Facebook prospectus, not by a secret tip off.

In a statement, the bank said: "In response to the information about business trends, a significant number of research analysts in the syndicate who were participating in investor education reduced their earnings views to reflect their estimate of the impact of the new information.

"These revised views were taken into account in the pricing of the IPO."