Facebook Class Action Case Given Go-Ahead

Two class actions alleging that Facebook (NasdaqGS: FB - news) hid concerns about its growth forecasts ahead of its stock market debut three years ago have been allowed to go ahead by a US judge.

Retail and institutional investors claim they lost money from buying shares in the social network giant at inflated prices in connection with the initial public offering (IPO) in May 2012 that raised $16bn (£11bn).

The company's founder and chief executive Mark Zuckerberg and chief operating officer Sheryl Sandberg are among those named as defendants in the case.

Facebook is appealing the decisions to certify the class actions, saying they are "without merit" and go against legal precedent.

Shareholders accuse the firm of concealing internal projections prior to the IPO of how growth in mobile devices – an area in which it generated little ad revenue – might hurt its prospects, even as it quietly warned underwriters to cut their forecasts.

Facebook made its market debut at $38 a share on 18 May 2012 but by 4 September its share price had fallen to $17.55.

The stock remained below the IPO price for more than a year though it ultimately rebounded and this week was trading at above $107.

In a Manhattan (Hamburg: 32U.HM - news) court ruling, US district judge Robert Sweet said Facebook had presented "an impressive amount of evidence" to suggest shareholders knew how mobile usage would affect revenue.

But he rejected the company's arguments that investors ought to pursue their claims individually, which might prove costly and reduce the sums recovered, because of wide variations in how much they knew.