Facebook founder Mark Zuckerberg has been sued by the social media network's shareholders over its disastrous IPO.
The lawsuit accuses Mr Zuckerberg, Facebook and several banks led by Morgan (KOSDAQ: 019990.KQ - news) Stanley (Berlin: SYC.BE - news) of hiding the company's weakened growth forecasts ahead of its $16bn initial public offering.
The defendants are claimed to have concealed from investors during the IPO marketing process "a severe and pronounced reduction" in Facebook revenue growth forecasts.
The news comes as Morgan Stanley (EUREX: DWDF.EX - news) , the bank in charge of the IPO, is being investigated over possible securites fraud.
The US bank has been accused of failing to warn smaller investors of a more negative assessment of Facebook's future profits.
It is claimed that several major investors had been pre-warned that a Morgan Stanley analyst had cut the amount of money he expected Facebook to make.
The advance notice allowed the investors to either avoid the stock completely or sell immediately after they floated at $38.
Facebook shares opened up 1.35pc at $31.42 on Wednesday. Within five minutes they were up 3.6pc. Prior to Wednesday they had fallen every day since the flotation last Friday, closing at $31 on Tuesday.
"The allegations, if true, are a matter of regulatory concern," said Rick Ketchum, the head of the Financial Industry Regulatory Authority.
Mary Schapiro, head of the Securities and Exchange Commission, said: “There is a lot of reason to have confidence in our markets and the integrity of how they operate, but there are issues we need to look at specifically with regard to Facebook.”
It was reported that Morgan Stanley analyst Scott Devitt cut his estimate for Facebook’s revenue this year to $4.85bn (£3.1bn) from a previous figure of more than $5bn, adding that the business faced multiple problems.
He claimed that growth in revenues could be hit by the increase in the use of mobile devices to look at Facebook, a medium the company’s advertising system has so far failed to crack.
William Gavin, the securities regulator for Massachusetts, issued the bank with subpoenas.
It comes amid accusations Morgan Stanley valued Facebook too aggressively.
"If the goal of the underwriters was not to leave a penny on the table, then it was a success," said Brian Wieser, an analyst at Pivotal Reserch Group. "But if it was to ensure that the shares had a favourable market to trade in, then it wasn't."
"What they [the underwriters] succeeded in doing was milking market sentiment," said Andrew Caldwell, a valuations partner at BDO. "You've got a problem that if you price it high, you've got nowhere else to go."
As the shares started to fall after the float last Friday, Morgan Stanley was forced buy up stock to support the company's value above the $38 listing price. The shares hit the float price a number of times during the day's trade, but didn't fall through it.

Source : http://uk.finance.yahoo.com/news/facebook-founder-mark-zuckerberg-sued-134310813.html

Yeah, read about that the other day. Looks like they 419ed the investors..