By Bernie on 26 May 2012
Photo Credit: NY Daily News
Before we discuss the Facebook IPO scandal, let me give you, my dear reader, a little background: there are ten people living in my home. My two sons, two daughters-in-law, three grandchildren, a mother-in-law, and my wife and me; and all of us are consummate consumers. In the litigious society we live in it is impossible to buy a lot of things without becoming part of a class-action lawsuit.
These lawsuits are instigated by lawyers strictly for their own benefit - certainly no consumer ever gets anything of value from them; see my article Mattel Toy Settlement Only Benefits Lawyers.
As a consequence, when these cases are resolved the lawyers get millions and we usually end up with a check for 7 cents or a coupon good for 10% off a future purchase of a product from the company being sued (see my article I got Overcharged and all I got was this lousy coupon).
Now we hear that the poor shlubs who bought Facebook stock are suing Facebook and Morgan Stanley (1).
So if past experience is any indication of how the current mess will end up for investors, here's my prediction: it doesn't matter whether the company being sued is in the wrong or not, in the end everyone settles because it's cheaper to do so. A special fund of one billion dollars from the coffers of Facebook and other Wall Street banks will be set up to be distributed to the offended members of the class action. About one-third will go to lawyers, another ten percent will be used for the costs of distribution and mailing and the rest will go to the purchasers of the IPO. So the remaining 560 million dollars will be split among the 421 million shares sold.
If you bought 10 shares for $380 you should get back a check for $13.30 and a coupon could for 10% off any advertising you may want to do on Facebook in the future.
I will write an article when the suit is finally over to see how close my prediction came.
A class-action lawsuit was filed Wednesday against Facebook Inc., Morgan Stanley & Co., and the other Wall Street banks that underwrote the Facebook's initial public offering, alleging they misled most shareholders about revenue projections for the social network.
The suit, filed in federal court in New York, alleged that the IPO prospectus and registration statement were "false and misleading" and violated the Securities Act. As a result, many people who bought Facebook stock when it began trading Friday lost money as the price of the shares tumbled in recent days.
Facebook stock was up about 3% in early trading Wednesday. But its price of about $32 a share was well below its initial offering price of $38.
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