Facebook fallout

By Bruce Sellery on June 15, 2012
Estimated reading time: 3 minutes

Investors burned by Facebook's IPO flop want their pound of flesh. Bruce Sellery explains what recourse Canadians have if they bought into the company's much-hyped market debut.

Question

I’m trying to find information on the Facebook IPO fiasco, specifically relating to Canadian investors. Surely I’m not the only fool in this country who bought this stock on the first day. My questions specifically are:

1. Can Canadian investors who bought Facebook stock on May 18th participate in the U.S. class action lawsuit?
2. Do these lawsuits apply only to institutional investors or to individual investors as well?
3. What recourse do Canadians who have lost on Facebook stock have?
4. Are there any Canadian law firms planning or in the process of filing class action suits on behalf of Canadians?

Answer

You are most definitely not the only Canadian who bought Facebook on its first day of trading and suffered the consequences. I have spoken before about the perils of investing in a stock just making its debut, but I can also see the allure. The lead up can be really exciting, and on the day of it feels like you’re in the game versus watching from the sidelines.

There are two class action lawsuits forming in response to Facebook’s IPO. One has to do with the technical problems that arose at the Nasdaq; the other has to do the way Facebook and its underwriters disseminated information to stock analysts, who then talked to certain investors.

I put your questions to Toronto lawyer Kirk Baert, a partner at Koskie Minsky LLP who specializes in class actions. Here is an edited and abridged version of his responses.

1. Can Canadian investors who bought Facebook stock on May 18th participate in the U.S. class action lawsuit?

The key question you have to ask is where the individual bought the shares—from a Canadian exchange like the TSX or from a U.S. exchange like the NYSE or Nasdaq. If the shares were bought on a U.S. exchange then U.S. courts will take jurisdiction, regardless of where the investor lives. In this case Facebook only trades on the Nasdaq, which means barring any other factors Canadians can likely participate in the class action lawsuit.

2. Do these lawsuits only apply to institutional investors or to individual investors as well?

The definition of who is eligible to participate in a lawsuit is framed in terms of when you bought the security, not what type of investor you are. What matters is whether you bought the stock between the start and end dates that have been identified in the claim. And the people bringing the case forward want the number of investors to be larger, not smaller.

3. What recourse do Canadians who have lost on Facebook stock have?

Canadians can join a class action lawsuit, provided they meet the criteria above and then are willing to wait. These cases can take a long time—say two to four years. Generally speaking, the more money at stake, the longer they take, but the suit could also be settled at any time.

There are a number of hurdles to get over before an investor sees any money. First the case has to be brought forward, get certified and be heard in court. Even if the lawsuit is successful it still has to survive any appeals that might be launched. Then and only then can plaintiffs expect collect any money.

4. Are there any Canadian law firms planning or in the process of filing a class action suit on behalf of Canadians?

At this point there is one firm that has filed suit, the Merchant Law Group based in Regina, Sask.

One final question

I would add one question that I think you should answer for yourself before you move forward: is it worth it to pursue this? Consider the money you might win back against the cost of your time and energy to follow this case through to its conclusion. You might feel it is worth it financially, or in terms of justice itself. Or you might categorize this as a great learning experience and move on. It’s your call.