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Court Approves Settlement Distribution Plan in Facebook Securities IPO Litigation

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Judge Colleen McMahon approved the lead plaintiffs’ distribution plan on Tuesday in a shareholder derivative lawsuit lodged against Facebook Inc. and certain of its senior executives, its directors, and the underwriters of its $16 billion 2012 initial public offering (IPO). This week’s order effectively concludes the multidistrict litigation that began nearly 10 years ago.

The plaintiffs’ operative complaint, filed in February 2013, alleged that Facebook made materially false and misleading statements and omissions about its revenue forecasts in advance of its IPO in May 2012. Prior to the first day of trading and during the IPO, revenue projections were reportedly adjusted downwards due to reports that “increasing mobile usage and Facebook’s product decisions had materially impaired the Company’s business.” Though Facebook amended its Securities and Exchange Commission (SEC) registration statement, the plaintiffs claimed that the company did not do enough to let the investing public know.

“At the time of the IPO, the Registration Statement, including the Prospectus, contained untrue statements of material fact, omitted to state facts necessary to make the statements made therein not misleading, and failed to disclose required material information,” the plaintiffs alleged. The complaint sought relief from three counts of federal securities law violations.

The plaintiffs secured class certification in December 2015, and the parties settled the matter in February 2018 for $35 million. In this week’s opinion, the court addressed concerns raised by claimants over the rejection of their claim submissions by the claims administrator. The court’s order dealt with the 55 remaining objectors’ arguments, either individually or by claimant group.

The court ruled that the disputing claimants were either not entitled to settlement funds or were not damaged by the defendants’ alleged misconduct. In particular, many claimants sought recovery though they had not actually lost money on their Facebook stock investment. The court explained that per the terms of the settlement, these claimants had not suffered “recognizable loss,” as required by the agreement.

Co-lead counsel is Kessler Topaz Meltzer & Check LLP and Lieff Cabraser Heimann & Bernstein. Facebook is represented by Kirkland & Ellis LLP and Willkie Farr & Gallagher LLP.

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