Case 1:12-cv-04252-PAE Document 1 Filed 05/30/12 Page 1 of 25 JUDGE ENGELMAYER UNITED STATES DISTRICT COURT 1 2 CV SOUTHERN DISTRICT OF NEW YORK 4 5 x JUSTIN F. , On Behalf of Himself and All Others Similarly Situated, Case No.

Plaintiff, CLASS ACTION

- against - COMPLAINT FOR VIOLATION OF SECTIONS 11, FACEBOOK, INC., MARK ZUCKERBERG, 12 and 15 OF THE SECURITIES DAVID A. EBERSMAN, DAVID M. SPILLANE,: ACT OF 1933 MARC L. ANDREESSEN, ERSKINE B. BOWLES, JAMES W. BREYER, DONALD E. DEMAND FOR JURY TRIAL GRAHAM, REED HASTINGS, PETER A. THIEL,: & CO. LLC, J.P. MORGAN SECURITIES LLC, GOLDMAN, SACHS & CO., LYNCH, PIERCE, FENNER & SMITH INCORPORATED, BARCLAYS CAPITAL INC., ALLEN & COMPANY LLC, GLOBAL MARKETS INC., SECURITIES: (USA) LLC, DEUTSCHE SECURITIES INC., RBC CAPITAL MARKETS, LLC, WELLS \ FARGO SECURITIES, LLC, BLAYLOCK ROBERT VAN LLC, BMO CAPITAL MARKETS: CORP., C.L. KING & ASSOCIATES, INC., CABRERA CAPITAL MARKETS, LLC, CASTLEOAK SECURITIES, L.P., COWEN AND COMPANY, LLC., E*TRADE SECURITIES LLC, ITAtJ BBA USA SECURITIES, INC., LAZARD CAPITAL MARKETS LLC, LEBENTHAL & CO., LLC, LOOP CAPITAL MARKETS LLC, M.R. BEAL & COMPANY, MACQUARIE CAPITAL (USA) INC., MURIEL SIEBERT & CO., INC., OPPENHEIMER & CO., INC., PACIFIC CREST SECURITIES LLC, PIPER JAFFRAY & CO., RAYMOND JAMES & ASSOCIATES, INC., SAMUEL A. RAMIREZ & COMPANY, INC., , NICOLAUS & COMPANY, INCORPORATED, THE WILLIAMS CAPITAL GROUP, L.P., and WILLIAM BLAIR & COMPANY, L.L.C.,

Defendants. x Case 1:12-cv-04252-PAE Document 1 Filed 05/30/12 Page 2 of 25

Plaintiff alleges the following based upon the investigation of counsel, Hach Rose

Schirripa & Cheverie LLP and the Law Office of Jay Saltzman, P.C., which included a review of

United States Securities and Exchange Commission ("SEC") filings by Facebook, Inc.

("Facebook"), as well as regulatory filings and reports, ratings agency reports and advisories

about Facebook, press releases and other public statements issued by the ratings agencies about

Facebook, and their own internal investigation. Plaintiff believes that substantial additional

evidentiary support will exist for the allegations set forth herein after reasonable opportunity for

discovery. The claims asserted herein do not sound in or arise from allegations of fraud.

NATURE OF THE ACTION

1. This is a class action brought by Justin F. Lazard alleging violations of Sections

11, 12 and 15 of the Securities Act of 1933, 15 U.S.C. §77a et seq. ("Securities Act"), on behalf

of persons and/or entities who purchased or otherwise acquired the common stock of Facebook

pursuant and/or traceable to the Company's initial public offering (the "IPO" or the "Offering").

2. Facebook shares were issued pursuant to a common Registration Statement filed

with the Securities Exchange Commission on or about May 16, 2012 (the "Registration

Statement"). The Offering also occurred in this venue. The Underwriters of the Offering were

defendants Morgan Stanley & Co. LLC ("Morgan Stanley"), J.P. Morgan Securities LLC ("JP

Morgan"), Goldman, Sachs & Co. (""), Merrill Lynch, Pierce, Fenner, & Smith

Incorporated ("Merrill Lynch"), Barclays Capital Inc. ("Barclays"), Allen & Company LLC

("Allen"), Citigroup Global Markets Inc. ("Citigroup"), Credit Suisse Securities (USA) LLC

("CSS"), Securities Inc. ("DBS"), RBC Capital Markets, LLC ("RBC"), Wells

Fargo Securities, LLC (""), Blaylock Robert Van LLC ("Blaylock"), BMO Capital

Markets Corp. ("BMO"), C.L. King & Associates, Inc. ("C.L. King"), Cabrera Capital Markets,

oil Case 1:12-cv-04252-PAE Document 1 Filed 05/30/12 Page 3 of 25

LLC ("Cabrera"), CastleOak Securities, L.P. ("CastleOak"), Cowen and Company, LLC.

("Cowen"), E*TRADE Securities LLC ("E*TRADE"), Itaü BBA USA Securities, Inc. ("Itai"),

Lazard Capital Markets LLC ("Lazard"), Lebenthal & Co., LLC ("Lebenthal"), Loop Capital

Markets LLC ("Loop"), M.R. Beal & Company ("M.R. Beal"), Macquarie Capital (USA) Inc.

("Macquarie"), Muriel Siebert & Co., Inc. ("Muriel Siebert"), Oppenheimer & Co. Inc.

("Oppenheimer"), Pacific Crest Securities LLC ("PCS"), Piper Jaffray & Co. ("Piper Jaffray"),

Raymond James & Associates, Inc. ("Raymond James"), Samuel A. Ramirez & Company, Inc.

("Ramirez"), Stifel, Nicolaus & Company, Incorporated ("Stifel Nicolaus"), The Williams

Capital Group, L.P. ("Williams"), and William Blair & Company, L.L.C. ("William Blair")

(collectively the "Underwriters" or "Underwriter Defendants"). Each Underwriter was obligated

to conduct meaningful due diligence to ensure that the Registration Statement contained no

material misstatements and omissions including as related to the stated manner in which the

mortgages had been originated. The Underwriters received massive fees for their work in

connection with the Offering. Based on, inter alia, the Underwriters' due diligence and the representations in the Registration Statement relating to the underwriting. At the time of the

Offering, Facebook shares were $38.00 per share.

JURISDICTION AND VENUE

3. The claims asserted herein arise under and pursuant to Sections 11, 12(a)(2), and

15 of the Securities Act, 15 U.S.C. §§ 77k, 771(a)(2) and 77o.

4. This Court has jurisdiction over the subject matter of this action pursuant to

Section 22 of the Securities Act, 15 U.S.C. § 77v and 28 U.S.C. § 1331.

5. Venue is properly laid in this District pursuant to § 22 of Securities Act and 28

U.S.C. § 1391(b) and (c). The acts and conduct complained of herein occurred in substantial part

3 Case 1:12-cv-04252-PAE Document 1 Filed 05/30/12 Page 4 of 25

in this District and the Underwriter Defendants maintain their principal places of business in this

District.

6. In connection with the acts and conduct alleged in this Complaint, defendants,

directly or indirectly, used the means and instrumentalities of interstate commerce, including the

mails and telephonic communications and the facilities of the NASDAQ National Securities

Market ("NASDAQ").

PARTIES

7. Plaintiff, Justin F. Lazard, purchased pursuant to the Registration Statement and

Prospectus which contained material misstatements of fact and omitted facts necessary to make

the facts stated therein not misleading. Plaintiff relied on the misstatements in the Prospectus

and has suffered damages pursuant to Sections 11 and 12 of the Securities Act.

8. Defendant Facebook is a Delaware corporation with its principal executive offices

located at 1601 Willow Road, Menlo Park, California 94025.

9. Defendant Mark Zuckerberg ("Zuckerberg") was, at all times relevant to this

complaint, Chairman and Chief Executive Officer ("CEO") of Facebook and signed or authorized the signing of the Company's Registration Statement filed with the SEC.

10. Defendant David A. Ebersman ("Ebersman") was, at all times relevant to this complaint, Chief Financial Officer ("CFO") of Facebook and signed or authorized the signing of the Company's Registration filed with the SEC.

11. Defendant David M. Spillane ("Spillane") was, at all times relevant to this complaint, Director of Accounting for Facebook and signed or authorized the signing of the

Company's Registration Statement filed with the SEC.

4 Case 1:12-cv-04252-PAE Document 1 Filed 05/30/12 Page 5 of 25

12. Defendant Marc L. Andreessen ("Andreessen") was, at all times relevant to this

complaint, a director of Facebook and signed or authorized the signing of the Company's

Registration Statement filed with the SEC.

13. Defendant Erskine B. Bowles ("Bowles") was, at all times relevant to this

complaint, a director of Facebook and signed or authorized the signing of the Company's

Registration Statement filed with the SEC.

14. Defendant James W. Breyer ("Breyer") was, at all times relevant to this

complaint, a director of Facebook and signed or authorized the signing of the Company's

Registration Statement filed with the SEC.

15. Defendant Donald E. Graham ("Graham") was, at all times relevant to this

complaint, a director of Facebook and signed or authorized the signing of the Company's

Registration Statement filed with the SEC.

16. Defendant Reed Hastings ("Hastings") was, at all times relevant to this complaint,

a director of Facebook and signed or authorized the signing of the Company's Registration

Statement filed with the SEC.

17. Defendant Peter A. Thiel ("Thiel") was, at all times relevant to this complaint, a director of Facebook and signed or authorized the signing of the Company's Registration

Statement filed with the SEC.

18. Defendant Zuckerberg, Ebersman, Spillane, Andreessen, Bowles, Breyer,

Graham, Hastings, and Thiel, are collectively referred to hereinafter as the "Individual

Defendants." The Individual Defendants, because of their positions with Facebook, possessed the power and authority to control the contents of Facebook's submissions to the SEC and the market, and participated in the drafting and editing of the Prospectus. The Individual Defendants

Ii Case 1:12-cv-04252-PAE Document 1 Filed 05/30/12 Page 6 of 25

all conducted business and had business residences at 1601 Willow Road, Menlo Park,

California 94025.

19. The Individual Defendants, as officers and/or directors each had a duty to

promptly disseminate accurate and truthful information with respect to Facebook, and to correct

any previously issued statements issued by, or on behalf of the Facebook that had become

materially misleading. The Individual Defendants' misrepresentations and omissions in the

Prospectus violated these specific requirements and obligations. The Individual Defendants were

signatories to the Registration Statement filed with the SEC and incorporated by reference in the

Prospectus.

20. The Defendants are all liable, jointly and severally, as participants in the issuance

of common stock pursuant to Facebook's IPO, including issuing, causing, or making materially

misleading statements In the Prospectus and omitting material facts necessary to make the

statements contained therein not misleading.

21. Defendant Morgan Stanley & Co. LLC ("Morgan Stanley") served as an

underwriter to Facebook in connection with the Offering.

22. Defendant J.P. Morgan Securities LLC ("JP Morgan") served as an underwriter to

Facebook in connection with the Offering.

23. Defendant Goldman, Sachs & Co. ("Goldman Sachs") served as an underwriter to

Facebook in connection with the Offering.

24. Defendant Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") served as an underwriter to Facebook in connection with the Offering.

25. Defendant Barclays Capital Inc. ("Barclays") served as an underwriter to

Facebook in connection with the Offering.

rel Case 1:12-cv-04252-PAE Document 1 Filed 05/30/12 Page 7 of 25

26. Defendant Allen & Company LLC ("Allen") served as an underwriter to

Facebook in connection with the Offering.

27. Defendant Citigroup Global Markets Inc. ("Citigroup") served as an underwriter

to Facebook in connection with the Offering.

28. Defendant Credit Suisse Securities (USA) LLC ("CSS") served as an underwriter

to Facebook in connection with the Offering.

29. Defendant Deutsche Bank Securities Inc. ("DBS") served as an underwriter to

Facebook in connection with the Offering.

30. Defendant RBC Capital Markets, LLC ("RBC") served as an underwriter to

Facebook in connection with the Offering.

31. Defendant Wells Fargo Securities, LLC ("Wells Fargo") served as an underwriter

to Facebook in connection with the Offering.

32. Defendant Blaylock Robert Van LLC ("Blaylock") served as an underwriter to

Facebook in connection with the Offering.

33. Defendant BMO Capital Markets Corp. ("BMO") served as an underwriter to

Facebook in connection with the Offering.

34. Defendant C.L. King & Associates, Inc. ("C.L. King") served as an underwriter to

Facebook in connection with the Offering.

35. Defendant Cabrera Capital Markets, LLC ("Cabrera") served as an underwriter to

Facebook in connection with the Offering.

36. Defendant CastleOak Securities, L.P. ("CastleOak") served as an underwriter to

Facebook in connection with the Offering.

7 Case 1:12-cv-04252-PAE Document 1 Filed 05/30/12 Page 8 of 25

37. Defendant Cowen and Company, LLC, ("Cowen") served as an underwriter to

Facebook in connection with the Offering.

38. Defendant E*TRADE Securities LLC ("E*TRADE") served as an underwriter to

Facebook in connection with the Offering.

39. Defendant Itai'i BBA USA Securities, Inc. ("Itail") served as an underwriter to

Facebook in connection with the Offering.

40. Defendant Lazard Capital Markets LLC ("Lazard") served as an underwriter to

Facebook in connection with the Offering.

41. Defendant Lebenthal & Co., LLC ("Lebenthal") served as an underwriter to

Facebook in connection with the Offering.

42. Defendant Loop Capital Markets LLC ("Loop") served as an underwriter to

Facebook in connection with the Offering.

43. Defendant M.R. Beal & Company ("M.R. Beal") served as an underwriter to

Facebook in connection with the Offering.

44. Defendant Macquarie Capital (USA) Inc. ("Macquarie") served as an underwriter

to Facebook in connection with the Offering.

45. Defendant Muriel Siebert & Co., Inc. ("Muriel Siebert") served as an underwriter

to Facebook in connection with the Offering.

46. Defendant Oppenheimer & Co. Inc. ("Oppenheimer") served as an underwriter to

Facebook in connection with the Offering.

47. Defendant Pacific Crest Securities LLC ("PCS") served as an underwriter to

Facebook in connection with the Offering.

8 Case 1:12-cv-04252-PAE Document 1 Filed 05/30/12 Page 9 of 25

48. Defendant Piper Jaffray & Co. ("Piper Jaifray") served as an underwriter to

Facebook in connection with the Offering.

49. Defendant Raymond James & Associates, Inc. ("Raymond James") served as an

underwriter to Facebook in connection with the Offering.

50. Defendant Samuel A. Ramirez & Company, Inc. ("Ramirez") served as an

underwriter to Facebook in connection with the Offering.

51. Defendant Stifel, Nicolaus & Company, Incorporated ("Stifel Nicolaus") served

as an underwriter to Facebook in connection with the Offering.

52. Defendant The Williams Capital Group, L.P. ("Williams") served as an

underwriter to Facebook in connection with the Offering.

53. Defendant William Blair & Company, L.L.C. ("William Blair") served as an

underwriter to Facebook in connection with the Offering.

CLASS ACTION ALLEGATIONS

54. Plaintiff brings this action as a class action pursuant to Federal Rules of Civil

Procedure 23(a) and 23(b)(3) on behalf of a class consisting of all persons and/or entities who

purchased or acquired the common stock of Facebook (the "Class") pursuant and/or traceable to the Registration Statement and Prospectus issued in connection with the Offering from the effective date through the date of the filing of this action. Excluded from the Class are

Defendants, their respective officers and directors at all relevant times, members of their immediate families and their legal representatives, heirs, successors or assigns and any entity in which Defendants have or had a controlling interest.

55. The members of the Class are so numerous that joinder of all members is impracticable. While the exact number of Class members is presently unknown to Plaintiff and

Case 1:12-cv-04252-PAE Document 1 Filed 05/30/12 Page 10 of 25

can only be ascertained through appropriate discovery, Plaintiff reasonably believes that there

are thousands of members in the proposed Class. Record owners and other members of the

Class may be identified from records maintained by Defendants and may be notified of the

pendency of this action by mail, the internet or publication using the form of notice similar to

that customarily used in securities class actions.

56. Plaintiff's claims are typical of the claims of the members of the Class as all

members of the Class are similarly affected by Defendants' wrongful conduct in violation of

statutory law complained of herein.

57. Plaintiff will fairly and adequately protect the interests of the members of the

Class and has retained Hach Rose Schirripa & Cheverie LLP and the Law Office of Jay

Saltzman, P.C., counsel competent and experienced in class and securities litigation.

58. Common questions of law and fact exist as to all members of the Class and

predominate over any questions solely affecting individual members of the Class. Among the

questions of law and fact common to the Class are:

a. whether the provisions of the Securities Act of 1933 was violated by the

Defendants as alleged herein;

b. whether the Registration Statement and Prospectus contained materially

untrue statements or omitted statements of material fact; and

C. to what extent the members of the Class have sustained damages pursuant

to toe statutory measure of damages.

59. A class action is superior to all other available methods for the fair and efficient

adjudication of this controversy since joinder of all members is impracticable. Furthermore, as

the damages suffered by individual Class members may be relatively small, the expense and

10 Case 1:12-cv-04252-PAE Document 1 Filed 05/30/12 Page 11 of 25

burden of individual litigation make it impossible for members of the Class to individually

redress the wrongs done to them. There will be no difficulty in the management of this action as

a class action.

SUBSTANTIVE ALLEGATIONS

60. Facebook operates a worldwide social network. The company builds tools that

enable users to connect, share, discover, and communicate with each other and developers. The

company also offers products that enable advertisers and marketers to engage with its users. As

of February 2, 2012, the company had 845 million monthly users and 443 million daily users.

61. On or about May 16, 2012, Facebook filed with the Securities and Exchange

Commission ("SEC") a Form S-i/A Registration Statement (the "Registration Statement"), for

the IPO.

62. On or about May 18, 2012, Facebook's Prospectus (the "Prospectus") for the IPO,

which forms part of the Registration Statement, became effective and 421 million shares of

Facebook common stock were sold to the public at $38.00 per share, thereby valuing the total

size of the IPO at more than $16 billion.'

63. The Registration Statement and Prospectus contained untrue statement of material

facts, omitted to state other facts necessary to make the statements made not misleading and were not prepared in accordance with the rules and regulations governing their preparation.

64. With regard to the company's expectations for the second quarter of 2012, the

Registration Statement and Prospectus state, in pertinent part, as follows:

Based upon our experience in the second quarter of 2012 to date, the trend we saw in the first quarter of [daily active users] increasing more rapidly than the increase in number of ads delivered has continued. We believe this trend is driven in part by increased usage of Facebook on mobile devices where we have only recently begun showing an immaterial number of sponsored stories in News Feed, and in

'Facebook Prospectus, filed with the SEC on May 18, 2012, at 7 [hereinafter "Prospectus"].

11 Case 1:12-cv-04252-PAE Document 1 Filed 05/30/12 Page 12 of 25

part due to certain pages having fewer ads per page as a result of product

decisions.2 65. In describing the risks related to Facebook's business and industry, the

Registration Statement purported to warn that the Company's revenues could be negatively

affected by the rate of growth in mobile users of its site or app. The Registration Statement and

Prospectus stated in pertinent part as follows:

Growth in use of Facebook through our mobile products, where our ability to monetize is unproven, as a substitute for use on personal computers may negatively affect our revenue andfinancial results.

We had 488 million [monthly active users] who used facebook mobile products in March 2012. While most of our mobile users also access Facebook through personal computers, we anticipate that the rate of growth in mobile usage will exceed the growth in usage through personal computers for the foreseeable future, in part due to our focus on developing mobile products to encourage mobile usage of Facebook. We have historically not shown ads to users accessing Facebook through mobile apps or our mobile website. In March 2012, we began to include sponsored stories in users' mobile News Feeds. However, we do not currently directly generate any meaningful revenue from the use of Facebook mobile products, and our ability to do so successfully is unproven. We believe this increase usage of Facebook on mobile devices has contributed to the recent trend of our daily active users (DAUs) increasing more rapidly than the increase in the number of ads delivered. If users increasingly access Facebook mobile products as a substitute for access through personal computers, and if we are unable to successfully implement monetization for our mobile users, or if we incur excessive expenses in this effort, our financial performances and ability to

grow revenue would be negatively affected. 3

66. The Registration Statement and Prospectus also purported to warn investors that the Company's revenues from advertising could be adversely affected by, among other things, the "increased user access to and engagement with facebook" through mobile devices. In that regard, the Registration Statement and Prospectus stated, in pertinent part, as follows:

We generate a substantial majority of our revenue from advertising. The loss of advertisers, or reduction in spending by advertisers with Facebook, could seriously harm our business.

2 Prospectus at 57. Prospectus at 14.

12 Case 1:12-cv-04252-PAE Document 1 Filed 05/30/12 Page 13 of 25

The substantial majority of our revenue is currently generated from third parties advertising on Facebook. In 2009, 2010, and 2011 and the first quarter of 2011 and 2012, advertising accounted for 98%, 95%, 85%, 87%, and 82%, respectively, of our revenue. As is common in the industry, our advertisers typically do not have long-term advertising commitments with us. Many of our advertisers spend only a relatively small portion of their overall advertising budget with us. In addition, advertisers may view some of our products, such as sponsored stories and ads with social context, as experimental and unproven. Advertisers will not continue to do business with us, or they will reduce the prices they are willing to pay to advertise with us, if we do not deliver ads and other commercial content in an effective manner, or if they do not believe that their investment in advertising will generate a competitive return relative to other alternatives. Our advertising revenue could be adversely affected by a number of other factors, including:

• decreases in user engagement, including time spent on Facebook;

• increased user access to and engagement with Facebook through our mobile products, where we do not currently directly generate meaningful revenue, particularly to the extent that mobile engagement is substituted for engagement with Facebook on personal computers where we monetize usage by displaying ads and other commercial content;

• product changes or inventory management decisions we may make that reduce the size, frequency, or relative prominence of ads and other commercial content displayed on Facebook;

• our inability to improve our analytics and measurement solutions that demonstrate the value of our ads and other commercial content;

• decisions by advertisers to use our free products, such as Facebook Pages, instead of advertising on Facebook;

• loss of advertising market share to our competitors;

• adverse legal developments relating to advertising, including legislative and regulatory developments and developments in litigation;

• adverse media reports or other negative publicity involving us, our Platform developers, or other companies in our industry;

• our inability to create new products that sustain or increase the value of our ads and other commercial content;

• the degree to which users opt out of social ads or otherwise limit the potential audience of commercial content;

13 Case 1:12-cv-04252-PAE Document 1 Filed 05/30/12 Page 14 of 25

changes in the way online advertising is priced;

• the impact of new technologies that could block or obscure the display of our ads and other commercial content; and

• the impact of macroeconomic conditions and conditions in the advertising industry in general.

The occurrence of any of these or other factors could result in a reduction in demand for our ads and other commercial content, which may reduce the prices we receive for our ads and other commercial content, or cause advertisers to stop advertising with us altogether, either of which would negatively affect our

revenue and financial results. 4

67. The statement references above in 1164-66 were untrue statements of material

fact. The true facts at the time of the IPO were that Facebook was then experiencing a severe and

pronounced reduction in revenue growth due to an increase in users of its Facebook app or

website through mobile devices rather than a traditional PC such that the company told the

Underwriter Defendants to materially lower their revenue forecasts for 2012. And, defendants

failed to disclose that during the roadshow conducted in connection with the IPO, certain of the

Underwriter Defendants reduced their second quarter and full year 2012 performance estimates

for Facebook, which revisions were material information which was not shared with all

Facebook investors, but rather, was selectively disclosed by defendants to certain preferred

investors and omitted from the Registration Statement and/or Prospectus.

The Truth Becomes Revealed

68. On May 19, 2012, in an article entitled "Morgan Stanley Was A Control-Freak

On Facebook IPO - And It May Have Royally Screwed Itself," Reuters reported that "Facebook

4 1d. at 13-14.

14 Case 1:12-cv-04252-PAE Document 1 Filed 05/30/12 Page 15 of 25

altered its guidance for research earnings last week, during the road show, a rare and

disruptive move."'

69. On May 22, 2012, in an article entitled "Underwriter cut Facebook estimates

before IPO: Morgan Stanley's move may have contributed to subsequent decline in Facebook's

share price," Reuters reported that Morgan Stanley, JP Morgan and Goldman Sachs, Facebook's

lead underwriters, cut their earnings forecasts for the company in the middle of the IPO

roadshow and only told a handful of preferred investors clients about the reduction. The article

states, in pertinent part, as follows:

In the run-up to Facebook's $16 billion IPO, Morgan Stanley, the lead underwriter on the deal, unexpectedly delivered some negative news to major clients: The bank's consumer Internet analyst, Scott Devitt, was reducing his revenue forecasts for the company.

The sudden caution very close to the huge initial public offering, and while an investor roadshow was underway, was a big shock to some, said two investors who were advised of the revised forecast.

They said it might have contributed to the weak performance of Facebook shares, which sank on Monday - their second day of trading - to end 10 percent below the IPO price. The $38 per share IPO price valued Facebook at $104 billion.

The change in Morgan Stanley's estimates came on the heels of Facebook's filing of an amended prospectus with the U.S. Securities and Exchange Commission (SEC), in which the company expressed caution about revenue growth due to a rapid shift by users to mobile devices. Mobile advertising to date is less lucrative than advertising on a desktop.

"This was done during the roadshow - I've never seen that before in 10 years," said a source at a mutual fund firm who was among those called by Morgan Stanley.

JPMorgan Chase and Goldman Sachs, which were also major underwriters on the IPO but had lesser roles than Morgan Stanley, also revised their estimates

5 Nadia Damouni, Morgan Stanley Was A Control-Freak on Facebook IPO - And It May Have Royally Screwed ItselJ REUTERS (May 19, 2012, 6:49 AM), available at http:llwww.businessinsider.comlmorgan-stanley-facebook- ipo-2012-5 (last visited May 25, 2012).

15 Case 1:12-cv-04252-PAE Document 1 Filed 05/30/12 Page 16 of 25

in response to Facebook's May 9 SEC filing, according to sources familiar with the situation.

Morgan Stanley declined to comment and Devitt did not return a phone message seeking comment. JP Morgan and Goldman both declined to comment.

Typically, the underwriter of an IPO wants to paint as positive a picture as possible for prospective investors. Investment bank analysts, on the other hand, are required to operate independently of the bankers and salesmen who were marketing stocks - that was stipulated in a settlement by major with regulators following a scandal over tainted stock research during the dotcom boom.

The people familiar with the revised Morgan Stanley projections said Devitt cut his revenue estimate for the current second quarter significantly, and also cut his full-year 2012 revenue forecast. Devitt' s precise estimates could not be immediately verified.

Scott Sweet, senior managing partner at the research firm IPO Boutique, said he was also aware of the reduced estimates.

"They definitely lowered their numbers and there was some concern about that," he said. "My biggest hedge fund client told me they lowered their numbers right around mid-roadshow."

That client, he said, still bought the issue but "flipped his IPO allocation and went short on the first day."

"VERY UNUSUAL"

Sweet said analysts at firms that are not underwriting IPOs often change forecasts at such times. However, he said it is unusual for analysts at lead underwriters to make such changes so close to the IPO.

"That would be very, very unusual for a book runner to do that," he said.

The lower revenue projection came shortly before the IPO was priced at $38 a share, the high end of an already upwardly projected range of $34-$38, and before Facebook increased the number of shares being sold by 25 percent.

The much-anticipated IPO has performed far below expectations, with the shares barely staying above the $38 offer price on their Friday debut and then plunging on Monday. Case 1:12-cv-04252-PAE Document 1 Filed 05/30/12 Page 17 of 25

Companies do not make their own financial forecasts prior to an IPO, and underwriters were generally barred from issuing recommendations on the stock until 40 days after it begins trading. Analysts often rely on guidance from the company in building their forecasts, but companies doing IPOs are not permitted to give out material information that is not available to all investors.

Institutions and major clients generally enjoy quick access to investment bank research, while retail clients in many cases only get it later. It is unclear whether Morgan Stanley only told its top clients about the revised view or spread the word more broadly. The firm declined to comment when asked who was told about the research.

"It's very rare to cut forecasts in the middle of the IPO process," said an official with a hedge fund firm who received a call from Morgan Stanley about revisions.6

70. Also on May 22, 2012, Henry Blodget published an article entitled, "Facebook

Bankers Secretly Cut Facebook's Revenue Estimates in Middle of IPO Roadshow," which stated

in relevant part:

And now comes some news about the Facebook (FB) IPO that buyers deserved to be outraged about.

Reuters' Alistair Barr is reporting that Facebook's lead underwriters, Morgan Stanley (MS), JP Morgan (JPM), and Goldman Sachs (GS) all cut their earnings forecasts for the company in the middle of the IPO roadshow.

This by itself is highly unusual (I've never seen it during 20 years in and around the tech IPO business).

But, just as important, news of the estimate cut was passed on only to a handful of big investor clients, not everyone else who was considering an investment in Facebook.

This is a huge problem, for one big reason:

Selective dissemination. Earnings forecasts are material information, especially when they are prepared by analysts who have had privileged access to company management. As lead underwriters on the IPO, these analysts would have had much

6 Alisfr Barr, Underwriter cut Facebook estimates before IPO: Morgan Stanley's move may have contributed to subsequent decline in Facebook 's share price, REUTERS (updated May 22, 2012 10:54:51 AM ET), http://www.msnbc.msn.comlid/475 1 9566/ns/business-us_business/t/underwriter-cut-facebook-estimates-ipo/ (last visited May 25, 2012).

17 Case 1:12-cv-04252-PAE Document 1 Filed 05/30/12 Page 18 of 25

better information about the company than anyone else. So the fact that these analysts suddenly all cut their earnings forecasts at the same time, during the roadshow, and then this information was not passed on to the broader public, is a huge problem.

Any investor considering an investment in Facebook would consider an estimate cut from the underwriters' analysts "material information."

What's more, it's likely that news of these estimate cuts dampened interest in the IPO among those who heard about them. (Reuters reported exactly this— that some institutions were "freaked out" by the estimate cuts, as anyone would have been.)

In other words, during the marketing of the Facebook IPO, investors who did not hear about these underwriter estimate cuts were placed at a meaningful and unfair information disadvantage. They did not know what a lot of other investors knew, and they suffered for it.

Selective dissemination of this sort could be a direct violation of securities law. Irrespective of its legality, it is also grossly unfair. The SEC should investigate this immediately.'

71. On May 24, 2012, Gina Chon, Jenny Strasburg, and Anupreeta Das published an

article entitled, "Some Big Firms Got Facebook Warning," illustrating selective dissemination of

Facebook's projected earnings and revenues by Facebook's lead underwriters. The article, in

relevant part, stated:

Capital Research & Management wanted to buy into the Facebook Inc. initial public offering. But days before the IPO, an underwriting bank on the deal warned the big investment firm about Facebook's dimming revenue prospects.

The Los Angeles firm, armed with information from a May 11 "roadshow" meeting with underwriters and Facebook, along with similar estimates of its own, slashed the number of shares it intended to buy..

Jennifer Krone received no such warning. . . . "We don't get the information that these institutional fund managers are getting," she says. "We're at a disadvantage."

7 llenry Blodget, Facebook Bankers Secretly Cut Facebook 's Revenue Estimates In Middle ofIPO Roadshow, DAILY TICKER (May 22, 2012 9:36 AM EDT), available at http:f/finance.yahoo.com/blogs/daily-ticker/facebook- bankers-secretly-cut-facebook-revenue-estimates-middle- 13 3648905.htTnl (last visited May 25, 2012).

18 Case 1:12-cv-04252-PAE Document 1 Filed 05/30/12 Page 19 of 25

After filing the updated IPO document [three days into the road-show], a Facebook executive individually called 21 sell-side research analysts to discuss the contents, as is standard practice, according to people familiar with the matter. Analysts were allowed to ask questions, and following some calls, a majority of them revised their estimates on revenue and earnings, the people said

Morgan Stanley and the other underwriters sprang into action. In the middle of the roadshow, the banks informed key clients—including large hedge funds, mutual funds and wealthy individuals—of the declining revenue prospects at Facebook. It was a significant red flag.

Fidelity Investments was among big clients that were told by analysts or bank sales staff of the declining Facebook financial picture, people familiar with the matter say. The nation's third-largest mutual fund firm expressed frustration to Morgan Stanley about Facebook valuations based on the dimming prospects for the company, the people say. 8

72. As of the date of the filing of this complaint, the 421 million shares of Facebook

common stock sold in the IPO are trading at approximately $ per share, or at least $ per

share below the price where Plaintiff and the class purchased the $16 billion worth of Facebook

stock while defendants pocketed billions of dollars. Plaintiff and the class have suffered losses of

more than $2.5 billion since the IPO.

COUNT I

Violation of Section 11 of The Securities Act (Against All Defendants)

73. Plaintiff repeats and realleges each and every allegation contained above.

74. This claim is brought by Plaintiff pursuant to Section 11 of the Securities Act and

asserted on behalf of all other members of the Class who purchased or acquired Facebook

common stock on or traceable to the Offering.

Gina Chon, Jenny Strasburg & Anupreeta Das, Some Big Firms Got Facebook Warning, WALL ST. J., May 24, 2012, at A 1-2. Case 1:12-cv-04252-PAE Document 1 Filed 05/30/12 Page 20 of 25

75. Defendant Facebook is the registrant for the Offering and filed the Registration

Statement and Prospectus as the issuer of the Facebook common stock, as defined in Section

11 (a)(1 ) of the Securities Act.

76. The Individual Defendants were officers and/or directors of Facebook at the time

the Registration Statement before the Offering became effective, and at the time of the

Prospectus, and with their consent were identified as such in the Registration Statement. The

Individual defendants are liable for the misstatements and omissions in the Registration

Statement alleged herein under § 11 (a)( 1) of the Securities Act.

77. Defendants Morgan Stanley, JP Morgan, Goldman, Goldman Sachs, Merrill

Lynch, Barclays, Allen, Citigroup, CSS, DBS, RBC, Blaylock, BMO, C.L. King, Cabrera,

CastleOak, Cowen, E*TRADE, Itaü, Lazard, Lebenthal, Loop, M.R. Beal, Macquarie, Muriel

Siebert, Oppenheimer, PCS, Piper Jaffray, Raymond James, Ramirez, Stifel Nicolaus, Williams,

and William Blair served as the Underwriters for the Offering and qualify as such according to

the definition in Section 2(a)(1 1) of the Securities Act, 15 U.S.C. § 77b(a)(1 1). As such, they

each participated in the solicitation, offering, and sale of the Facebook common stock to the

investing public pursuant to the Registration Statement and the Prospectus.

78. The Registration Statement and the Prospectus, at the time they became effective,

contained material misstatements of fact and omitted facts necessary to make the facts stated

therein not misleading, as set forth above. The facts misstated and omitted would have been

material to a reasonable person reviewing the Registration Statement and the Prospectus.

79. The Defendants did not make a reasonable investigation and perform due diligence and did not possess reasonable grounds for believing that the statements contained in

20 Case 1:12-cv-04252-PAE Document 1 Filed 05/30/12 Page 21 of 25

the Registration Statement and Prospectus were true, did not omit any material fact, and were not

materially misleading.

80. Plaintiff and the other Class members did not know, and in the exercise of

reasonable diligence, could not have known of the misstatements and omissions contained in the

Registration Statement and the Prospectus.

81. Plaintiff and other Class members sustained damages as a result of misstatements

and omissions in the Registration Statement and the Prospectus, for which they are entitled to

compensation.

82. Plaintiff brought this action within one year after the discovery of the untrue

statements and omissions, and within three years after the Offering.

COUNT II

Violation of Section 12(a)(2) of the Securities Act (Against Facebook and Underwriter Defendants)

83. Plaintiff repeats and realleges each and every allegation contained above.

84. This Count is brought pursuant to Section 12(a)(2) of the Securities Act on behalf

of the Class, against all Defendants.

85. By means of the Registration Statement and Prospectus, and by using means and

instruments of transportation and communication in interstate commerce and of the mails, the

Defendants through the Offering sold Facebook common stock to Plaintiff and other members of

the Class.

86. Defendants Facebook, the Individual Defendants and the Underwriter Defendants each successfully solicited these purchases motivated at least in part by its own financial interest.

The Defendants each reviewed and participated in drafting the Prospectus. Through ensuring the

21 Case 1:12-cv-04252-PAE Document 1 Filed 05/30/12 Page 22 of 25

successful completion of the Offering, the Underwriter Defendants obtained substantial

underwriting fees.

87. The Registration Statement and the Prospectus, at the time it became effective,

contained material misstatements of fact and omitted facts necessary to make the facts stated

therein not misleading, as set forth above. The facts misstated and omitted would have been

material to a reasonable person reviewing the Registration Statement and the Prospectus.

88. Defendants as "sellers" owed to the purchasers of the Facebook common stock,

including Plaintiff and other Class members, the duty to perform due diligence and make a

reasonable and diligent investigation of the statements contained in the Registration Statement

and the Prospectus, to ensure that such statements were true and that there was no omission to

state a material fact required to be stated in order to make the statements contained therein not

misleading. Defendants knew of, or in the exercise of reasonable care should have known of, the

misstatements and omissions contained in the IPO materials as set forth above.

89. Plaintiff and other members of the Class purchased or otherwise acquired

Facebook common stock pursuant to the defective Registration Statement and Prospectus.

Plaintiff did not know, or in the exercise of reasonable diligence could not have known, of the

untruths and omissions contained in the Registration Statement and the Prospectus.

90. Plaintiff, individually and representatively, hereby offers to tender to Defendants those securities which Plaintiff and other Class members continue to own, on behalf of all members of the Class who continue to own such securities, in return for the consideration paid for those securities together with interest thereon. Class members who have sold their common stock in Facebook are entitled to rescissionary damages.

22 Case 1:12-cv-04252-PAE Document 1 Filed 05/30/12 Page 23 of 25

91. By reason of the conduct alleged herein, these Defendants violated, and/or

controlled a person who violated Section 12(a)(2) of the Securities Act. Accordingly, Plaintiff

and members of the Class who hold Facebook common stock purchased pursuant and/or

traceable to the Offering have the right to rescind and recover the consideration paid for their

Facebook common stock and hereby elect to rescind and tender their Facebook common stock

to the Defendants sued herein. Plaintiff and Class members who have sold their common stock

in Facebook are entitled to rescissionary damages.

COUNT III

Violation of Section 15 of The Securities Act (Against Facebook and the Individual Defendants)

92. Plaintiff repeats and realleges each and every allegation contained above.

93. This claim is brought by Plaintiff pursuant to Section 15 of the Securities Act and

asserted on behalf of all Class members who purchased or acquired Facebook common stock in

the Offering.

94. The Individual Defendants at all relevant times participated in the operation and

management of Facebook, and conducted and participated, directly and indirectly, in the conduct

of Facebook's business affairs.

95. As officers and/or directors of Facebook, the Individual Defendants had a duty to

disseminate accurate and truthful information in the Registration Statement and the Prospectus.

96. As set forth above, it is alleged that the Registration Statement and Prospectus issued in connection with the Facebook Offering contained material misstatements of fact, and omitted facts necessary to make the facts contained therein not misleading, in violation of

Sections 11 and 12 of the Securities Act.

23 Case 1:12-cv-04252-PAE Document 1 Filed 05/30/12 Page 24 of 25

97. Because of their positions of control and authority as senior officers and directors

of Facebook, the Individual Defendants were able to, and did, control the contents of the

Registration Statement and Prospectus which contained material misstatements of fact and

omitted facts necessary to make the facts stated therein not misleading. The Individual

Defendants were therefore "controlling persons" of Facebook within the meaning of Section 15

of the Securities Act.

98. Plaintiff and other Class members purchased Facebook common stock issued

pursuant to the Offering. The Offering was conducted pursuant to the Registration Statement

and the Prospectus.

99. The Registration Statement and Prospectus, at the time they became effective,

contained material misstatements of fact and omitted facts necessary to make the facts stated

therein not misleading. The facts misstated and omitted would have been material to a

reasonable person reviewing the Registration Statement and the Prospectus.

100. Plaintiff and the Class did not know, and in the exercise of reasonable diligence,

could not have known of the misstatements and omissions in the Registration Statement and the

Prospectus.

101. Plaintiff and the Class have sustained damages as a result of the misstatements

and omissions of the Registration Statement and the Prospectus, for which they are entitled to compensation.

102. Plaintiff brought this action within one year after the discovery of the untrue statements and omissions, and within three years after the Offering.

24 Case 1:12-cv-04252-PAE Document 1 Filed 05/30/12 Page 25 of 25

WHEREFORE, Plaintiff prays for relief and judgment, as follows:

(a) Determining that this action is a proper class action under Fed. R. Civ. P. 23;

(b) Awarding compensatory damages in favor of Plaintiff and the other

Class members against all Defendants, jointly and severally, for all damages sustained as a result of Defendants' wrongdoing, in an amount to be proven at trial, including interest thereon;

(c) Awarding Plaintiff and the Class their reasonable costs and expenses incurred in this action, including counsel fees and expert fees; and

(d) Such other and further relief as the Court may deem just and proper.

JURY TRIAL DEMANDED

Plaintiff hereby demands a trial by jury.

Dated: May 30, 2012 New York, New York

Respec fly ubmitteN

By chae1 A. Itose Frank R. Schirripa HACH ROSE SCHIRRIPA & CHEVERIE LLP 185 Madison Avenue, 14th Floor New York, New York 10016 Telephone: (212) 213-8311 Facsimile: (212) 779-0028

And

Jay P. Saltzman LAW OFFICES OF JAY SALTZMAN, P.C. 110 Wall Street, 11th Floor New York, New York 10005 Telephone: (646) 374-4282 Facsimile: (212) 943-2300 Attorneys for Plaintiff

25