Friends no more as lawsuit builds

THE law firm that won a $US7 billion settlement for Enron's shareholders is pursuing Facebook, Morgan Stanley and some of the biggest names in Silicon Valley over the social network's disastrous share sale. Robbins Geller is co-ordinating a class action alleging that Facebook and its bankers misled investors about the true state of their business, while informing a handful of privileged clients about the true prospects. The lawsuit, filed in New York, names Mark Zuckerberg, Facebook's founder, as a defendant, as well as top Silicon Valley investors Peter Thiel and Marc Andreessen, and Goldman Sachs, JPMorgan and Barclays CapitBook your hotel in Perth online. Revenue growth forecasts are at the crux of the class action against Facebook and investment bankers. Revenue growth forecasts are at the crux of the class action against Facebook and investment bankers. Photo: AFP THE law firm that won a $US7 billion settlement for Enron's shareholders is pursuing Facebook, Morgan Stanley and some of the biggest names in Silicon Valley over the social network's disastrous share sale. Robbins Geller is co-ordinating a class action alleging that Facebook and its bankers misled investors about the true state of their business, while informing a handful of privileged clients about the true prospects. The lawsuit, filed in New York, names Mark Zuckerberg, Facebook's founder, as a defendant, as well as top Silicon Valley investors Peter Thiel and Marc Andreessen, and Goldman Sachs, JPMorgan and Barclays Capital. Advertisement: Story continues below It comes as US regulators announced they are investigating the handling of Facebook's initial public offering. More shareholder lawsuits are expected. In its suit, Robbins Geller alleges that Facebook bankers cut their forecasts for revenue growth in the midst of their IPO roadshow - when bankers and Facebook executives, including Mr Zuckerberg, met analysts and potential investors. Reuters reported this week that in the run-up to the IPO, Morgan Stanley told some big clients that its consumer internet analyst Scott Devitt had cut his revenue forecasts. On Tuesday, Massachusetts' Secretary of Commonwealth, William Galvin, sent a subpoena to Morgan Stanley demanding more details. Analysts are required to act independently of investment bankers, a stipulation that came out of the dotcom bubble scandal. One internet analyst said it was highly unusual for an the analyst at an IPO's lead banker to cut forecasts so late in a share sale. Facebook had previously amended its prospectus (known as an S-1 filing) to warn that its users were increasingly using mobile devices and the company, as yet, makes little money from those users. ''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,'' according to Robbins Geller's suit. The defendants ''selectively disclosed'' to ''certain preferred investors'' the cuts in their forecasts, the suit alleges. In a statement, Morgan Stanley said: ''Morgan Stanley followed the same procedures for the Facebook offering that it follows for all IPOs. These procedures are in compliance with all applicable regulations. ''After Facebook released a revised S-1 filing on May 9 providing additional guidance with respect to business trends, a copy of the amendment was forwarded to all of MS's institutional and retail investors and the amendment was widely publicised in the press at the time. ''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.'' Robbins Geller helped Enron investors recover more than $7 billion from the institutions that helped finance the Texan energy company before its collapse. Andrew Stoltmann, a Chicago securities lawyer, said Facebook would be ''sucked into the vortex'' of this lawsuit but that Morgan Stanley faced greater risk. ''Federal securities law is very clear - it requires full disclosure. Any information about earnings or revenues would have to be disclosed equally,'' he said.