Facebook the Target of Several Class Action Lawsuits

Facebook, the behemoth social media corporation that had its initial public offering (IPO) in May, is the target of several class-action lawsuits spanning multiple alleged violations. First, it is alleged that Facebook and its underwriters misled shareholders about projected revenue by only giving select investors detailed, up-to-date information about possible revenue shortfalls before the IPO. Second, Facebook is the target of multiple class action lawsuits claiming that the company illegally tracked Web users, including after people had left their website. Facebook’s IPO occurred on May 18, 2012, and was underwritten by Morgan Stanley and other Wall Street banks.

Facebook is the target of multiple class action lawsuits claiming that the company illegally tracked Web users.

First, it is alleged that the company knew of information that reduced its earning potential (and thus, the value of the company) but did not fully disclose this information to the general public before the IPO. Facebook amended its S.E.C. (U.S. Securities and Exchange Commission) filing a week before the IPO to say that its earning potential might be hurt by increasing mobile users, but many allege that this was not specific enough. Furthermore, it has been reported that certain underwriters leaked more detailed information to about two dozen select investors, un-leveling the playing field by putting non-institutional investors (regular people) at a severe information disadvantage. Facebook is now trading below $28 per share, significantly less than the IPO price of $38 per share.

Second, a consolidated class-action lawsuit has been filed claiming that Facebook violated the privacy of users by tracking their Internet activity, even after they had left the site. These activities are alleged to violate the Federal Wiretap Act, which provides statutory damages of $100 per day per violation per user. Although the damages are capped at $10,000 per user, even only one violation per user would cost Facebook a staggering $15 billion. According to ZDNet, this is not the first time Facebook has been accused of tracking users to third-party websites, but the corporation has maintained each time that these instances are bugs and has claimed that they have fixed each problem.