Nasdaq fails to win dismissal of Facebook IPO lawsuit

Mon Dec 16, 2013 6:38pm EST
 
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By Jonathan Stempel

NEW YORK (Reuters) - A federal judge has rejected Nasdaq OMX Group Inc's bid to dismiss lawsuits by investors who accused the exchange operator of botching Facebook Inc's $16 billion initial public offering, a decision released on Monday shows.

Nasdaq had argued that its status as a self-regulatory organization (SRO) gave it immunity from claims it broke securities laws and was negligent in how it executed orders to buy and sell shares of the social media company on May 18, 2012, the first day of trading.

In a 97-page decision, U.S. District Judge Robert Sweet in Manhattan agreed that SRO status gave Nasdaq immunity from some claims, including the decision not to halt the IPO.

But he rejected Nasdaq's effort to dismiss claims over the design and testing of its systems, including that it allegedly knew its advertised "on-time, on-target and ready-to-launch" had not undergone the "stress tests" needed to ensure it was up to handling trading in Facebook.

Sweet said the plaintiffs adequately alleged that Nasdaq's inadequate disclosures caused them to lose money through failed trade executions and possible "artificial downward pressure" on Facebook's share price.

"Once this testing revealed inadequacies and flaws in light of the upcoming largest IPO in Nasdaq history, Nasdaq had a duty to correct its prior statements as to its capabilities," the judge wrote. "Nasdaq's failure to correct flawed information about its technology capabilities could have impacted plaintiffs' decision to participate in Facebook's offering and ability to trade during that offering."

Joseph Christinat, a Nasdaq spokesman, declined to comment on the decision, which is dated December 12.

Vincent Cappucci, a lawyer for some of the plaintiffs, said in an email he is pleased that the case can go forward.   Continued...

 
Traffic flies by the entrance sign to Facebook headquarters in Menlo Park, California before the company's IPO launch, May 18, 2012. REUTERS/Beck Diefenbach