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The two class actions suits certified by a judge against Facebook at the end of December last year underlined how miserable the festive period must have being for Facebook. This came just weeks after India’s telecom’s regulator TRAI decided to suspend implementation of Free Basics in India due to serious outcry from some concerned citizens.

 

facebook two class actions

It seems Facebook would dedicate a lot of time and resources in 2016 trying to resolve these issues in ways that are favorable to their business model.

In the case of the two class action, a US district court in Manhattan New York, Judge Robert Sweet gave the go-ahead to some of Facebook’s shareholders, mostly retail and institutional investors, to pursue their claims as groups. The sticking point in the case had being Facebook’s insistence that only individuals can pursue claims in the court of law.

The shareholders are accusing Facebook of concealing information about the health of the company prior to its IPO in 2012. Specifically they accused Facebook of not been honest on projections about how mobile devices might hurt the performance of Facebook. At that time, there was little ad revenue coming in from mobile devices. They claimed Facebook provided insider information to underwriters to scale back on their forecasts.

facebook two class actions

When Facebook made its first appearance in the market in May 2012, it sold at $38 per share. By September of the same year, the share price has fallen by more than 50% to $17.5 and stayed below the initial public offering price for more than a year.

Even though Facebook share price has risen over that interval to about $107 on Nasdaq as at the 22nd of December last year, the shareholders claim they lost a lot money in 2012 and therefore should be compensated by Facebook.

The crux of the ruling is this, Facebook know that ultimately, class actions can become really expensive in compensation if the case is lost. While on the other hand, suits by individuals, even if successful do not amount to much in terms of compensation to individuals. And besides, individual shareholders tend not to have the stamina or resources to fully pursue a suit against a behemoth like Facebook.

In allowing the two class actions to proceed, Judge Sweet claimed that Facebook had gathered a lot of clear statistics to show that they were aware of how the increasing use of mobile devices to access Facebook would impact on their revenue.

In a 55-page judgement, the judge dismissed Facebook’s argument that it is wrong for shareholders to pursue the case as a group. Facebook contention is that shareholders should pursue the case individually. Facebook say it is going to appeal the decision to allow the two class actions in a federal court. According to Facebook the ruling of the judge,

”conflicts with well-settled Supreme Court and Second Circuit law.”

Facebook further said that,

“The suggestion that class members’ knowledge might be inferred on a class-wide basis flouts due process”

Lawyers for the two class actions, the law firms Bernstein Litowitz Berger & Gross man and Labaton Such a row, naturally released a statement saying they were happy with Judge Sweet’s decision.

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