New York Securities Fraud Lawyers Blog

Three New York investors have filed a class action complaint – dated May 23rd – against Facebook and chief executive Mark Zuckerberg, in addition to lead underwriter Morgan Stanley and an array of secondary underwriters (including JPMorgan Chase, Barclays Capital, Goldman Sachs, and Merrill Lynch) claiming that negative information about the social network’s initial public offering was withheld. Monetary damages are to date unspecified. The suit was filed by Robbins Geller, a firm that years ago earned plaintiffs $7 billion in a suit against Enron.

A failure to disclose information unilaterally among all investors could potentially be considered a form of misrepresentation and fraud, as well as a breach of fiduciary duty. For further explanation of these possible charges and more, visit our Investors page.

Particularly interesting and possibly advantageous for the plaintiffs is that Morgan Stanley’s chief analyst Scott Devitt – famed for his accurate, bearish predictions in recent years that Google and Amazon stock would drop – is alleged to have cautioned preferred customers against zealous purchase of Facebook stock. Morgan Stanley controlled both the process of Facebook’s trading and over 38 percent of Facebook shares sold. Devitt’s and other analysts’ revised revenue forecasts were shared via phone calls with institutional investors – but not with retail investors – before public trading of the stock began. These forecasts outlined expectations for how Facebook would fare into the second quarter and throughout 2012. Robbins Geller’s statement against the underwriters thus argues that the prospectus “contained untrue statements of material facts.”

Since the financial crisis of 2008 collapse of Lehman Brothers and beyond, the need for regulators to create new means of quelling excessive risk has been met with questions remain as to how effective these rules have been. Many of the new post-crisis rules have not yet gone into effect, and even once executed, a broker’s capability for evasion remains. To learn more about regulation on a national scale, visit the Governmental, Regulatory, and Self-Regulatory Proceedings page of our firm’s website.

A section of the Dodd-Frank Act legislation, the Volcker Rule, is to be implemented over the next two years with an aim at averting certain types of trading. While this regulation prevents banks from doing speculative trades with their own money, it will not stop hedging activities. The Volcker Rule contains guidelines that are meant to help regulators decide whether a hedge masks proprietary trading.

Other parts of Dodd-Frank resist undue risk more covertly. The Act looks to shift many derivatives to central clearing houses, the groups who collect the payments on a trade. This is said to theoretically strengthen the market, because companies are required to back their trades with margin payments of cash or safe securities. In theory, the financial burden of supplying margin to clearinghouses could make excessively risky trades restrictively expensive, and therefore less attractive for banks.

Investors rely upon their brokers for accurate statements on the market: without knowledge and researched facts, there is no trust that our investments have been wisely managed. In understanding this need, regulatory bodies intervene in situations when brokerage firms have failed to live up to their end of the informational bargain struck with their customers. To learn more about failure to disclose, misrepresentation, and omission within the securities game – as well as Malecki Law’s extensive experience in aiding investors harmed by misinformation – visit the Investors page of our firm’s site.

A new instance of high-profile misinformation is alleged in a May 22nd press release which confirms that the Financial Industry Regulatory Authority (FINRA) has fined Citigroup Global Markets, Inc. the sum of $3.5 million. The release cites numerous causes for the admonishment, including several alleged violations pertaining to subprime residential mortgage-backed securitizations (RMBS), including the supplying of erroneous information on mortgage performance and failure to supervise. An RMBS can be defined as a type of security in which investor profit stems from home-equity loans and mortgages (subprime and otherwise).

FINRA cites inaccurate RMBS information on Citigroup’s website as the fine’s direct cause. Citigroup and other RMBS distributors are required to disclose accurate and up-to-date historical data on mortgage performances, so as to grant investors a fair assessment of the RMBS value, as well as the true likelihood of a mortgage-owner’s failure to make payments. According to FINRA Executive Vice President and Chief of Enforcement Brad Bennett, “Citigroup posted data for its RMBS deals that it should have known was inaccurate; for over six years, investors potentially used faulty data to assess the value of the RMBS.”