First Suit Over Facebook's Stock Plunge Is Filed in Manhattan Federal Court
The first shareholder suit was filed Friday against Facebook in the Southern District of New York over the erasure of $100 billion in value just one day after the social media giant's stock plunged. The 24-page complaint was filed by Pierce Bainbridge Beck Price & Hecht in New York, on behalf of a proposed class defined as people who bought stock in the social media company from Oct. 1, 2017, through July 26, 2018. Facebook Inc. as well as its founder and CEO, Mark Zuckerberg, Chief Financial Officer David Wehner and Chief Operating Officer Sheryl Sandberg are named defendants.
The plaintiffs' lawyers allege that throughout the months leading up to Thursday, Facebook and its top executives "made materially false and misleading statements regarding Facebook’s business and operations," including its adaptation to the European Union's new GDPR data protection requirements, its platform use and revenue growth. The "decline in Facebook’s Platform use and the increase in costs as a result of complying with the GDPR had a materially adverse effect on Facebook’s financial health, including its revenue and projected growth," the complaint states, with the impact of making statements from the company "materially false and misleading."
On Thursday, after Facebook issued a statement the day before about its second-quarter 2018 results, the company's stock price plummeted from $217.50 per share, its closing price on Wednesday, to $174.97 as markets opened Thursday. By the end of the trading week, the price was $174.89. The plunge wiped out more than $100 billion in stock value. Zuckerberg's and Wehner's statements about the GDPR transition—admitting that the service lost 1 million users in Europe—"had a devastating impact on Facebook's stock price," according to the complaint.
"This is a new age," said name partner John Pierce. "We didn't start working on this until yesterday afternoon after I saw news of the stock drop on Fox News during a break in trial prep. No firm can replicate our speed and lethality." David Hecht, a partner at Pierce Bainbridge, said teams on both coasts worked through the night to develop the complaint. It was filed at roughly 4 p.m. Friday, he said. Hecht said the effort involved 3 a.m. handoffs from East Coast-based attorneys to their West Coast colleagues. "It has really been an incredible ride." In addition to "bragging rights," being first to the courthouse offered some tactical benefit, Hecht said.
"There is an advantage in filing first," Hecht said, particularly in engaging with institutional investors that may be substituted as lead plaintiff in the case. The case is captioned Helms v. Facebook. It was not assigned to a judge by late Friday afternoon. A spokeswoman for Facebook said the company was declining to comment.
From article: ALM Media July 27, 2018