Facebook is set to file a motion to consolidate all the shareholder lawsuits against it, which may shed some light on the severity of Nasdaq’s technical glitch on the social networking site’s IPO.
The lawsuit alleges that Facebook executives, including Zuckerberg, CFO (chief financial officer) David Ebersman and underwriter Morgan Stanley, intentionally hid negative views of the company’s revenue growth potential prior to floating.
According to the New York Times, the motion, which may be filed in the District Court for the Southern District of New York today, will provide some perspective on Nasdaq’s role on the day of Facebook’s IPO.
Sources familiar with the matter said that the motion will shed light on the effect the exchange’s actions had on the stock’s trading activity.
The IPO was riddled with technical problems, which led to a delay of 30 minutes. The problem stemmed from Nasdaq’s IPO Cross, a pre-IPO auction process that the exchange put in place in 2006 that allows traders to place orders and agree on an IPO price before the stock is officially launched, which couldn’t handle the trading demand.
Facebook’s initial IPO was priced at $38 a share, but this leapt up to $45 in the first few hours after trading, and has since declined up to 30 percent.
Nasdaq has earmarked $40 million (£26 million) in compensation for financial firms that suffered losses during the IPO, which will largely be made up of discounted trading fares. However, the payback plans have received harsh criticism, where some trading firms have said that the $40 million is a fraction of the hundreds of millions lost in the moments following the flotation.
Furthermore, operating rival New York Stock Exchange (NYSE) has released a statement claiming that if the discounted trading fees plans are approved, this would result in unfair practice and equates to the industry subsidising Nasdaq’s mistakes.
“We believe it would be wholly inconsistent with fair practice and an undue burden on competition to allow Nasdaq to use pricing and other machination as a guise for fairly compensating those impacted by the Facebook IPO issues," said NYSE.
“Such a tactic would potentially strongly incentivise customers to divert order flow to Nasdaq in order to receive compensation to which they are entitled, and allow Nasdaq to reap benefit from market share gains they would not have otherwise received.”
NYSE believes that this would establish a “harmful precedent that could have far reaching implications for the markets, investors and the public interest”.