San Jose, CA — After the IPO of Facebook stocks sank faster than the Titanic on her maiden voyage; Facebook founder and CEO, Mark Zuckerberg is now facing a billion dollar class action lawsuit from disgruntled Facebook shareholders.
The FB shareholders claim they have been “zuckered” (pun intended) by the brains of the biggest social network in the world into investing on the Facebook stock. According to the lawsuit, Zuckerberg and his accomplices deliberately withheld information that the value of the Facebook stock was way too overpriced and overrated.
According to the investors, Zuckerberg and minions all knew that there were major foundational flaws in the business model they have presented to the investors. The FB stock was inflated to $38 per share but there really was not much revenue coming in from advertisers posting on FB to support that stock price. And Zuckerberg knew this from the very beginning but with all that media hype, he was still able to lure investors. And since he knew that his stock was going to fall faster than a soufflé being poked by a fork, he sold his stocks before the initial public offering, thus saving him from great financial loss and still earn a whopping profit.
The lawsuit also claimed that major financial companies like JP Morgan, Morgan Stanley and Goldman Sachs had previously advised that Facebook’s IPO price is way too high and is not expected to perform that well in the stock market but this information was only provided to FB’s largest investors and thus, the unknowing small investor got burned in the process.
Facebook was launched in 2004 by a 20-year-old Zuckerberg. The site soon became the world’s biggest social networking site and is valued at about $100 billion and is currently headquartered in Palo Alto which is 18 miles from San Jose, CA in Santa Clara County. They were originally located in Menlo Park but it seems their original location seemed to be cursed; companies like Sun Microsystems lost money while being rooted there (must be the bad Feng Shui). With the new location came greater success for Zuckerberg but it also came with a price… lawsuits.
Zuckerberg is no stranger to lawsuits; he had been sued by the Winklevoss twins (Tyler and Cameron) and Divya Narendra for stealing their idea for ConnectU and repackaging it as Facebook. It was reported that Zuckerberg settled with the Winklevoss twins for $65 million but in Facebook stock and not cold hard cash. In the end, it is more like a big IOU.
The Big Z was also sued by his Facebook co-founder, Eduardo Saverin. The case was settled out of court and Saverin signed a non-disclosure waiver.
With all the lawsuits that Zuckerberg is facing right now, this will certainly have a negative impact on the stocks of Facebook. With a lackluster performance on its first day, closing at only an additional 23 cents from the $38 original stock price, FB stocks are down to $26.90 per share as of June 4, 2012.
The initial public offering of Facebook was based more on hype than actual facts that talked about the performance of advertising ads that were placed on the site. Does anyone every click those ads by the way?
Unfortunately, for the small investors, this is a major lesson in investing that they have learned and they had to learn it the hard way. Some of them might end up filing for bankruptcy because of this. But even with a billion dollar lawsuit, Zuckerberg most probably wouldn’t get hit too badly and file for Chapter 11 bankruptcy in case he loses. He is valued at $15 billion as of the moment but hopefully it is in liquidated form not stock form or else it will just be like play money.