Facebook Will Weather Lawsuits and IPO

COMMENTARY | This has to be a land-speed record somewhere. Since its IPO on Friday, Facebook is facing its first maelstrom of investors angry enough over their losses to take Mark Zuckerberg and Morgan Stanley to court, according to Reuters. But are the plaintiffs justified? It's hard to tell.



The charge is Facebook initially overestimated the stock value, and although it amended the value on May 9, only select investors were informed instead of the public in general. It seems underwriters had not factored in mobile views of the site not being as lucrative to the company as page view hits on a computer. A revised prospectus factored this in, but too few investors knew about the changes.



Admittedly, an 18.4 percent drop in the first three days of trading is a major loss. But such is the market. Investors know there's always a risk of complete loss with any investment. And if they don't know this, they should not play the stock market game.



But beyond this, isn't a lawsuit over losses so early on a bit hasty? We're talking the first three trading days. Facebook seems to have the staying power to eventually recover from the initial setback and end up an earner. Stock in a company set to change the world might be an amazing long-term investment, but I doubt it's the kind of vehicle desirable to day traders.



As well, in another Reuters report, when Facebook changed its forecast, it notified the appropriate parties as required by law. Is it to blame if potential investors didn't do their own due diligence and research? As soon as underwriters revised the prospectus, they made the effort to disclose the changes via telephone and conference calls to appropriate parties.



Here's where it's tough. Regulation Fair Disclosure applies to all publicly traded companies. At the time of these changes, Facebook was prepublic. The rule might not apply to a company in this status. We nonlawyers/nonstockholders will have to sit back and enjoy the show as attorneys and Wall Street work this out. In the meantime, I'd recommend Zuckerberg find a way to monetize those mobile views to give his investors as much return as possible -- and to do it fast.



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