In Re Facebook - Petition To Appeal Class Cert Ruling PDF

15-_____
d
IN THE
United States Court of Appeals

FOR THE SECOND CIRCUIT
IN
FACEBOOK, INC., IPO SECURITIES

AND D ERIVATIVE L ITIGATION
RE
ON APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF NEW YORK
MDL NO. 12-2389
PETITION BY DEFENDANTS FOR LEAVE TO APPEAL

CLASS CERTIFICATION ORDER PURSUANT TO FED. R. CIV. P. 23 (f )
TARIQ MUNDIYA
TODD G. COSENZA
SAMEER ADVANI
WILLKIE FARR & GALLAGHER LLP
787 Seventh Avenue
New York, New York 10019
(212) 728-8000
RICHARD D. BERNSTEIN
ELIZABETH J. BOWER
1875 K Street, NW
Washington, D.C. 20006
(202) 303-1000
ANDREW B. CLUBOK
BRANT W. BISHOP
NATHANIEL KRITZER
ADAM B. STERN
KIRKLAND & ELLIS LLP
601 Lexington Avenue
(212) 446-4800
SUSAN E. ENGEL
655 Fifteenth Street NW
Washington, D.C. 20005
(202) 879-5000
Counsel for Facebook, Inc. and Individual Facebook Defendants

(Counsel continued on inside cover)
JAMES P. ROUHANDEH
CHARLES S. DUGGAN
ANDREW DITCHFIELD
DAVIS POLK & WARDWELL LLP
(212) 450-4000
Counsel for the Underwriter
Defendants
CORPORATE DISCLOSURE STATEMENT

Pursuant to Fed. R. App. P. 26.1, I hereby certify that Facebook, Inc. has no
parent company, and no publicly held company owns more than ten percent of its
stock.
/s/ Andrew B. Clubok
Andrew B. Clubok
New York, NY 10022
Telephone: (212) 446-4800
Facsimile: (212) 446-4900
Counsel for Facebook, Inc. and
Individual Facebook Defendants
Pursuant to Fed. R. App. P. 26.1, I hereby certify as follows:
Morgan Stanley & Co. LLC is a limited liability company whose sole
member is Morgan Stanley Domestic Holdings, Inc., a corporation wholly owned
by Morgan Stanley Capital Management, LLC, a limited liability company whose
sole member is Morgan Stanley. Morgan Stanley is a publicly held corporation
that has no parent corporation. Based on Securities and Exchange Commission
Rules regarding beneficial ownership, Mitsubishi UFJ Financial Group, Inc. 7-1
Marunouchi 2-chome, Chiyoda-ku, Tokyo 100-8330, beneficially owns greater
than 10% of Morgan Stanleys outstanding common stock.
J.P. Morgan Securities LLC is a wholly-owned subsidiary of J.P. Morgan

Broker-Dealer Holdings Inc., which, in turn, is a wholly-owned subsidiary of
JPMorgan Chase & Co., a publicly held company. JPMorgan Chase & Co. has no
parent company and no publicly held corporation owns 10% or more of its stock.
Goldman, Sachs & Co. is an indirect wholly owned subsidiary of The
Goldman Sachs Group, Inc. (GS Group), which is a corporation organized under
the laws of Delaware and whose shares are publicly traded on the New York Stock
Exchange. GS Group has no parent corporation and, to the best of GS Groups
knowledge, no publicly held company owns 10% or more of the common stock of
GS Group.
Merrill Lynch, Pierce, Fenner & Smith Incorporated is a wholly owned
subsidiary of BAC North America Holding Company. BAC North America
Holding Company is a wholly-owned subsidiary of NB Holdings Corporation. NB
Holdings Corporation is a direct subsidiary of Bank of America Corporation,
which owns all of the common stock of NB Holdings Corporation. Bank of
America Corporation is a publicly held company whose shares are traded on the
New York Stock Exchange. Bank of America Corporation has no parent company
and no publicly held corporation owns more than 10% of Bank of America
Corporations shares.
ii
Barclays Capital Inc. identifies the following as parent corporations or

publicly held corporations that own 10% or more of any class of its equity
interests: Barclays PLC, Barclays Bank PLC and Barclays Group US Inc.
Allen & Company LLC is a wholly owned subsidiary of Allen Operations
LLC, which is a privately held LLC. Allen Operations LLC is, in turn, owned by
employees of Allen & Company LLC and a minority position is also held by Allen
Holding Inc., a closely held company. No publicly held corporation owns 10% or
more of Allen & Company LLCs stock.
Citigroup Global Markets Inc. (CGMI) is a wholly owned subsidiary of
Citigroup Financial Products, Inc., which, in turn, is a wholly owned subsidiary of
Citigroup Global Markets Holdings Inc., which, in turn, is a wholly owned
subsidiary of Citigroup Inc., a publicly held company. Citigroup Inc. has no parent
company and, to the best of CGMIs knowledge, no publicly held corporation
owns 10% or more of Citigroup Inc.s stock.
Credit Suisse Securities (USA) LLC is a wholly owned indirect subsidiary of
Credit Suisse Group AG. Credit Suisse Group AG has no parent company, and no
publicly held corporation owns 10 percent or more of its stock.
Deutsche Bank Securities Inc. is a wholly-owned subsidiary of DB U.S.
Financial Markets Holding Corporation, which in turn is a wholly-owned
subsidiary of DB USA Corporation, which in turn is a wholly-owned subsidiary of
iii
Deutsche Bank AG, which is a publicly held corporation. No other publicly held
corporation owns 10 percent or more of Deutsche Bank Securities Inc.s stock.
RBC Capital Markets, LLC is an indirect wholly owned subsidiary of the
Royal Bank of Canada, a public company whose shares are traded on the New
York Stock Exchange and Toronto Stock Exchange. The Royal Bank of Canada
has no parent company and no publicly held corporation owns 10% or more of its
stock.
Wells Fargo Securities, LLC, a limited liability company organized under
the laws of Delaware, is a wholly-owned subsidiary of EVEREN Capital Corp.
EVEREN Capital Corp. is a wholly owned subsidiary of Wells Fargo & Company,
a publicly traded corporation organized under the laws of the State of Delaware.
There is no person or entity that owns more than 10 percent of the shares of Wells
Fargo & Company.
Blaylock Beal Van, LLC (formerly known as Blaylock Robert Van LLC) is
a privately held limited liability company that has no parent company, and no
publicly held corporation owns ten percent or more of Blaylock Robert Van, LLC.
BMO Capital Markets Corp. is an indirect wholly-owned subsidiary of Bank
of Montreal, a publicly held company. Bank of Montreal has no parent company
and no publicly held corporation owns 10% or more of its stock.
iv
C.L. King & Associates is a privately held company. No public company

owns 10 percent or more of C.L. King & Associates.
Cabrera Capital Markets, LLC is a privately held company that is owned by
Cabrera Capital Inc. and RCF-Cabrera Holdings, Inc. No public company owns 10
percent or more of Cabrera Capital Markets, LLC.
CastleOak Securities, L.P. is a limited partnership in which the partners are
CastleOak Management, LLC and CastleOak Management Holdings, LLC.
CastleOak Management Holdings, LLC is a wholly owned subsidiary of Cantor
Fitzgerald, L.P. No publicly held company owns 10 percent or more of the stock
of Cantor Fitzgerald, L.P.
Cowen and Company, LLC is owned by Cowen Group Inc., a publicly
traded company. No publicly held company owns 10% or more of the stock of
Cowen Group Inc.
E*TRADE Securities LLC states that its corporate parent is E*TRADE
Financial Corporation, a publicly traded company. E*TRADE Securities further
states that no publicly traded company owns more than 10% of E*TRADE
Financial Corporations stock.
Itau BBA USA Securities, Inc. is wholly owned by Itau USA Inc. Itau USA
Inc. is 99.9% owned by ITB Holding Brasil Participaes S.A., which is 99.9%
owned by Ita Unibanco S.A., which, in turn, is a wholly owned subsidiary of Ita
v
Unibanco Holding S.A., a publicly held company. Ita Unibanco Holding S.A. is
controlled by Ita Unibanco Participaes S.A., which is controlled, in part, by
Itasa - Investimentos Itau S.A., a publicly held company. Itasa - Investimentos
Itau S.A. has no parent company and no publicly held company owns 10% or more
of its stock.
FM Partners Holdings LLC (formerly known as Lazard Capital Markets
LLC) is a wholly owned subsidiary of LMDC Holdings LLC, a private limited
liability company. No publicly held company owns ten percent or more of FM
Partners Holdings LLC.
Lebenthal & Co., LLC, is an affiliate of Lebenthal Holdings, LLC. No
publicly held corporation owns ten percent or more of Lebenthal & Co., LLC or
Lebenthal Holdings, LLC.
Loop Capital Markets LLC is 69% owned by Loop Capital, LLC, a nonoperating limited liability company.
No publicly owned company owns ten
percent or more of Loop Capital LLC.

M.R. Beal & Company is no longer a separate legal entity following the
formation of Blaylock Beal Van, LLC. M.R. Beal & Company has no parent
company, and no publicly held corporation owns ten percent or more of M.R. Beal
& Company.
vi
Macquarie Capital (USA) Inc. (Macquarie) is a wholly owned indirect

subsidiary of Macquarie Group Limited, a publicly held corporation. No public
company owns more than ten percent of Macquarie Group Limited. No other
publicly held corporation owns more than ten percent of Macquarie.
Muriel Siebert & Co., Inc. is a wholly owned subsidiary of Siebert Financial
Corp., a publicly traded company.
No publicly traded corporation owns ten
percent or more of Siebert Financial Corp.

Oppenheimer & Co. Inc. is a subsidiary of Oppenheimer Holdings Inc.,
which is a publicly traded company. No publicly held corporation owns 10
percent or more of Oppenheimer Holdings Inc.
KeyBanc Capital Markets Inc. (formerly known as Pacific Crest Securities
LLC) is a wholly-owned subsidiary of KeyCorp, a publicly traded company. No
publicly held company owns 10% or more of KeyCorps stock.
Piper Jaffray & Co. is a wholly-owned subsidiary of Piper Jaffray
Companies, which is a publicly held company. Piper Jaffray Companies does not
have a parent corporation and no publicly held corporation owns 10% or more of
Piper Jaffray Companies stock.
Raymond James & Associates, Inc. is a wholly owned subsidiary of
Raymond James Financial, Inc., a publicly held company.
No publicly held
company owns 10% or more of the stock of Raymond James Financial, Inc.
vii
Samuel A. Ramirez & Company, Inc. is a wholly owned subsidiary of SAR

Holdings, Inc., a closely held corporation. No public company owns ten percent or
more of Samuel A. Ramirez & Company, Inc.
Stifel, Nicolaus & Company, Incorporated is a wholly-owned subsidiary of
Stifel Financial Corp., a publicly traded corporation listed on the New York Stock
Exchange. There are no publicly held corporations that own 10% percent or more
of Stifel Financial Corp.s common stock.
The Williams Capital Group, L.P. is a limited partnership of which the
general partner is The Williams Capital Group, Inc. No publicly held company
owns ten percent or more of The Williams Capital Group, L.P.
William Blair & Company, L.L.C. is wholly owned by WBC Holdings, L.P.
WBC Holdings, L.P. has no parent company, and no publicly held corporation
owns ten percent or more of WBC Holdings, L.P.
/s/ James P. Rouhandeh

James P. Rouhandeh
New York, NY 10001
Telephone: (212) 450-4000
Facsimile: (212) 701-5800
Counsel for Underwriter Defendants
viii
TABLE OF CONTENTS
Page
INTRODUCTION ..................................................................................................... 1
BACKGROUND ....................................................................................................... 3
QUESTIONS PRESENTED ...................................................................................... 8
REASONS FOR GRANTING THE PETITION ....................................................... 8
I.
There Is A Compelling Need For Immediate Review Of The

District Courts Certification Of Classes Widely Populated
By Investors With Varying Degrees Of Knowledge Of
Allegedly Omitted Information. ............................................................ 9
II.
There Is A Compelling Need For Immediate Review Of The

District Courts Ruling That Knowledge And Conflicting
Arguments About Loss Causation And Damages Can Be
Managed At A Later Stage. ................................................................. 17
CONCLUSION ........................................................................................................ 20
ix
TABLE OF AUTHORITIES
Page(s)
Cases
Akerman v. Oryx Commcns., Inc.,
810 F.2d 336 (2d Cir. 1987) ............................................................................... 18
Brecher v. Republic of Argentina,
806 F.3d 22 (2d Cir. 2015) ................................................................................. 17
Comcast Corp. v. Behrend,
133 S. Ct. 1426 (2013) ........................................................................................ 17
In re DJ Orthopedics, Inc.,
2003 U.S. Dist. LEXIS 21534 (S.D. Cal. Nov. 16, 2003) .................................. 13
In re Facebook, Inc., Initial Pub. Offering Derivative Litig.,
797 F.3d 148 (2d Cir. 2015) .........................................................................3, 4, 5
In re Facebook, Inc. IPO Sec. & Derivative Litig.,
986 F. Supp. 2d 487 (S.D.N.Y. 2013) .................................................................. 6
Fort Worth Emps. Ret. Fund v. J.P. Morgan Chase & Co.,
301 F.R.D. 116 (S.D.N.Y. 2014) ..................................................................18, 20
Hevesi v. Citigroup Inc.,
366 F.3d 70 (2d Cir. 2004) ............................................................................... 8, 9
In re IPO Sec. Litig.,
471 F.3d 24 (2d Cir. 2006), decision clarified on denial of rehg,
483 F.3d 70 (2d Cir. 2007) ..........................................................................passim
In re Literary Works in Elec. Databases Copyright Litig.,
654 F.3d 242 (2d Cir. 2011) ............................................................................... 19
Mazzei v. Money Store,
288 F.R.D. 45 (S.D.N.Y. 2012) .......................................................................... 16
McLaughlin v. Am. Tobacco Co.,
522 F.3d 215 (2d Cir. 2008) ...................................................................11, 12, 20
Moore v. PaineWebber, Inc.,

306 F.3d 1247 (2d Cir. 2002) ......................................................................... 3, 13
Myers v. Hertz Corp.,
624 F.3d 537 (2d Cir. 2010) .........................................................................11, 14
N.J. Carpenters Health Fund v. Rali Series 2006-QO1 Trust,
477 F. Appx 809 (2d Cir. 2012) ........................................................................ 16
N.J. Carpenters Health Fund v. Royal Bank of Scotland Grp., PLC,
709 F.3d 109 (2d Cir. 2013) ............................................................................... 12
In re Omnicom Grp., Inc. Sec. Litig,
597 F.3d 501 (2d Cir. 2010) ............................................................................... 19
Police & Fire Ret. Sys. Of City of Detroit v. IndyMac MBS, Inc.,
721 F.3d 95 (2d Cir. 2013) ................................................................................. 12
Schuler v. NIVS Intellimedia Tech. Grp., Inc.,
2013 WL 944777 (S.D.N.Y. Mar. 12, 2013) ...................................................... 18
Shady Grove Orthopedic Assocs., P.A. v. Allstate Ins. Co.,
559 U.S. 393 (2010) ............................................................................................ 12
Sicav v. James Jun Wang,
2015 WL 268855 (S.D.N.Y. Jan. 21, 2015) ....................................................... 20
In re Sumitomo Copper Litig.,
262 F.3d 134 (2d Cir. 2001) ............................................................................. 8, 9
In re Vivendi Universal, S.A.,
242 F.R.D. 76 (S.D.N.Y. 2007) .......................................................................... 12
In re Vivendi Universal, S.A. Sec. Litig.,
284 F.R.D. 144 (S.D.N.Y. 2012) ........................................................................ 12
W.R. Huff Asset Mgmt. Co. v. Deloitte & Touche LLP,
549 F.3d 100 (2d Cir. 2008) ............................................................................... 17
Wal-Mart Stores, Inc. v. Dukes,
564 U.S. 338, 131 S. Ct. 2541 (2011).......................................................2, 10, 14
xi
Statutes
15 U.S.C. 77k(e) ................................................................................................... 18
15 U.S.C. 77l(a)(2)................................................................................................ 14
15 U.S.C. 77l(b) .................................................................................................... 18
Rules
Fed. R. Civ. P. 23 ..............................................................................................passim
Fed. R. Civ. P. 23(f) ................................................................................................... 3
xii
INTRODUCTION
The district court certified two investor subclasses to litigate plaintiffs
claims under the Securities Act of 1933 that Facebooks Registration Statement
allegedly omitted information about revised revenue projections and the impact of
increased mobile device usage on Facebooks revenues.
demonstrated
through
extensive
class
certification
As Defendants
discovery,
however,
innumerable investors actually knew about the allegedly undisclosed information

prior to the IPO. The district court recognized that such knowledge precludes
liability for the Securities Act claims at issue, Op. 26,1 and that determining the
knowledge of each investor in the plaintiff class is a subjective inquiry for each
and every investor, Op. 31, that would likely overwhelm[] the common
adjudication of other issues in this case if tried together. Op. 48. Accordingly,
class certification plainly is inappropriate given the well settled law of this Court.
But the district court ignored that law, erroneously proposing that individual
actual knowledge can be adequately managed post-trial through an individualized
phase involving separate jury trials if necessary. Id. And the court failed to
provide any class-wide or other efficient mechanism for resolving other central
issues, including conflicting arguments about loss causation. The district courts
1
The district courts order (Op.) is attached as Tab A. Defendants submitted in

the district court a paginated appendix (A-#). All emphases are added except
as otherwise noted.
1
approach cannot be squared with the cornerstone of the class action device, which
is appropriate only where litigating the lead plaintiffs claims would fairly resolve
defendants liability to other class members.
The district courts certification ruling so turns on its head well-settled class
action law that interlocutory review is warranted. The district court incorrectly
held that subjective knowledge is a common issue when it is so widespread that it
applies to a very great number of potential claimants. Op. 31. But an issue is
common only when common proof will resolve the issue for all plaintiffs in one
stroke. The district courts acknowledgment that a very large number of plaintiffs
and potential class members had varying degrees of knowledge about the
information at issue, Op. 31, means that class members subjective knowledge
cannot be resolved by common proof.
The suggestion that class members
knowledge might be inferred on a class-wide basis flouts due processboth the

rights of each absent class member to argue that it lacked actual knowledge and the
rights of Defendants to present evidence that absent class members had knowledge
that defeats their claims. See Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338, 131 S.
Ct. 2541, 2561 (2011) ([T]he Rules Enabling Act forbids interpreting Rule 23 to
abridge, enlarge or modify any substantive right.).
The district courts novel ruling is squarely at odds with this Courts
precedent that predominance cannot be satisfied where, as here, knowledge and
2
other central disputed issues would be left to a series of individual trials after a
class verdict. See, e.g., In re IPO Sec. Litig., 471 F.3d 24, 43-44 (2d Cir. 2006),
decision clarified on denial of rehg, 483 F.3d 70 (2d Cir. 2007) (class certification
is improper where actual knowledge is widespread and thus a key individual
issue); Moore v. PaineWebber, Inc., 306 F.3d 1247, 1253 (2d Cir. 2002) (class
certification is improper where misrepresentation is not uniform and thus a key
individual issue). Here, the district court recognized the importance of individual
knowledge by excluding 20 investors (including one of the lead plaintiffs
investment advisors) who were shown to have varying degrees of knowledge. Op.
48. Defendants are entitled to discovery and an opportunity to prove disabling
knowledge and other disputed individualized defenses as to each remaining class
member as well. This Court should grant review under Fed. R. Civ. P. 23(f).
BACKGROUND
This case arises out of Facebooks IPO on May 18, 2012, which this Court
has recognized was one of the largest in history. In re Facebook, Inc., Initial
Pub. Offering Derivative Litig. (Derivative Decision), 797 F.3d 148, 152 (2d Cir.
2015). On the first day of trading, a massive trading debacle on NASDAQ spurred
a wave of selling. Most of the press that followed focused on the NASDAQ
problems, but some press accounts also reported that several weeks into the second
quarter, Facebook and its underwriters had revised revenue projections. While still
predicting revenue growth, Facebook forecast that for the second quarter it could
come in at the lower end of the 1.1 to 1.2 billion dollar range it had previously
given underwriters, and for the full year it could be 3 to 3.5 percent off its original
5 billion dollar projection.2
Some press accounts also reported that the
underwriters revised their estimates of Facebooks projected revenue accordingly.

Facebooks stock declined below the IPO price, and by the end of the third
trading day, the first of dozens of lawsuits were filed blaming the drop on different
parties. Derivative suits against Facebooks officers and directors were dismissed,
and this Court affirmed that dismissal on July 24, 2015.
Id.
Cases against
NASDAQ were settled for $26.5 million. Defendants in this action filed a notice
of appeal on December 9, 2015, challenging how the court failed to ensure the
offset arising from the settlement to which the non-NASDAQ defendants would be
entitled. These recent appeals are pending before this Court as docketed Nos. 153983, -3986, -3989, and -3990.
This petition involves the claims against Facebook and the underwriters
brought under Sections 11, 12(a)(2), and 15 of the Securities Act of 1933. See
Complaint (attached at Tab B). The Complaint alleges that Facebook and the
2
The press had widely reported the revisions, albeit without the specific
numbers, prior to the IPO. A-1244-1301. Incidentally, the revised projections
proved too conservative: Facebook reported actual revenue of $1.184 billion
for the second quarter and over 5 billion dollars for 2012. Derivative Decision,
797 F.3d at 152 n.3.
4
underwriters did not disclose in the Registration Statementbut the underwriters

selectively disclosed to some institutional investorsthat they had revised their
estimates of Facebooks projected revenue. Compl. 178-80; Op. 9-10. Notably,
the Registration Statement did disclose that it is difficult to forecast our future
results, that Facebook did not currently directly generate any meaningful
revenue from mobile usage, and that its revenue would be negatively affected if
it remained unable to successfully implement monetization strategies for []
mobile users. A-1026, A-1030, A-1063 (Final S-1); see also Derivative Decision,
797 F.3d at 152-53. Facebook also filed a Free Writing Prospectus just nine days
before the IPO highlighting that increased usage of Facebook on mobile devices
had continued in the second quarter. A-1006; see also Oral Arg. Tr. 35-36, In re
Facebook, Inc., Initial Pub. Offering Derivative Litig., Nos. 14-1445, 14-1309, 141784, 14-632, 14-1788 (2d Cir. Apr. 27, 2015) (JUDGE JACOBS: Looking at the
disclosure it basically says that something is happening there is an increase
in the number of active daily users thats increasing more rapidly than increasing
the number of ads. Thats not good. Wouldnt somebody assume that if you have
less advertising youre getting less revenue. This is not being written for
idiots.) (excerpt attached as Tab C).
The court below denied a motion to dismiss, and plaintiffs moved to certify
a class of all investors or alternatively two subclasses of institutional and retail
5
investors. Plaintiffs argued in class certification briefing that their liability theory
turned on the fact that Facebook failed to disclose that it had revised its
projections, and that because [n]o class members supposedly knew about
Facebooks revised projections, individualized knowledge inquiries did not
preclude certification. Pls. Class Cert. Mem. at 5.3
In opposition, Defendants submitted what the district court admitted was an
impressive amount of individualized evidence (developed through thousands of
hours of discovery) showing that knowledge among individual class members,
including lead plaintiffs investment advisors, was rampant: many investors had
learned from a variety of sources that either Facebook or underwriters had revised
revenue projections and that increasing mobile usage was reportedly already
having an impact on second quarter revenues.4 Without explanation, plaintiffs then
In its opinion denying the motion to dismiss, the district court had agreed with
the consensus case law holding that a company has no duty to disclose internal
forecasts or changes to internal forecasts, but held that plaintiffs could proceed
with a claim that the loss of revenues caused by the increasing mobile usage
was a trend known by Facebook that the Company had a duty to disclose. See
In re Facebook, Inc. IPO Sec. & Derivative Litig., 986 F. Supp. 2d 487, 507-08
(S.D.N.Y. 2013). The district courts class certification order, however,
allowed plaintiffs to proceed with a class action based on a post-motion to
dismiss position (Op. 43) that flip flopped back to arguing that Facebook
should have disclosed that it revise[d] its own revenue forecast. Op. 10.
Dozens of declarations, multiple depositions, and hundreds of documents

showed that before the IPO: Facebook disclosed the allegedly omitted
information to at least 19 underwriter analysts; underwriters representatives
shared information about revised revenue estimates with hundreds of
6
conceded that, based on their review, 20 of the investors for whom Defendants had
submitted evidence of knowledgewho collectively purchased over 16% of the
IPO allocationshould be excluded from the class. Op. 5-6.
In an order dated December 11, 2015, the district court granted certification
under Rule 23(b)(3) of two subclassesinstitutional investors and retail
investorsand excluded the 20 investors plaintiffs had identified. Op. 6, 20. The
court accepted that knowledge required a subjective inquiry for each and every
investor, Op. 31, and it found that knowledge was widespread among institutional
investors based on extensive individualized evidence presented by Defendants. Id.
However, the court then found that because this case involve[s] a very great
number of potential claimants, and because knowledge is so widespread among
institutional investors, knowledge can somehow be treated as a common question.
Op. 31-37. The court found the opposite for the retail class: because Defendants
presented much less evidence of actual knowledge for retail investors, it was
not enough to defeat predominance for the retail subclass. Op. 37, 40.
The court also rejected Defendants remaining arguments, including that
institutional investors; scores of those investors, including those who purchased
for lead plaintiffs and individual investors, received the omitted information;
individuals who worked for institutional investors passed the information to
colleagues, family, and friends; the media reported on the revisions and the
mobile revenue impact; and investors read the media reports. A-1-107, A-20124, A-1529-70 (testimony); A-358-990, A-1685-1850 (documents); A-12441301 (media reports).
7
lead plaintiffs were not typical because they were each subject to an individual
knowledge defense, and that loss causation and damages, exacerbated by intraclass conflicts, cannot be resolved on a class-wide basis.
QUESTIONS PRESENTED
1.
Did the District Court erroneously hold, in conflict with Rule 23 and
this Courts precedents, including In re IPO Securities Litigation, 471 F.3d 24, 4344 (2d Cir. 2006), that a disputed individual issue such as varying, actual
subjective knowledge should be treated as a common issue that does not defeat
predominance when substantial individualized evidence indicates that it is likely to
be an issue for a great number of class members?
2.
Did the District Court erroneously hold that questions of individual
knowledge, loss causation and damages, and intra-class conflicts can be managed
at some later stage, thereby requiring a series of additional jury trials on disputed
issues that are central to this action and that are not capable of class treatment?
REASONS FOR GRANTING THE PETITION
This Court has unfettered discretion to grant or deny permission to appeal
based on any consideration that [the Court] finds persuasive.
Hevesi v.
Citigroup Inc., 366 F.3d 70, 76 (2d Cir. 2004) (quoting Rule 23 Comm. Note, 1998
Amend.). The Court has declined to adopt any hard-and-fast rules, In re Sumitomo
Copper Litig., 262 F.3d 134, 139 (2d Cir. 2001), but often looks to whether either
the certification order will effectively terminate the litigation and there has been a
substantial showing that the district courts decision is questionable or the
certification order implicates a legal question about which there is a compelling
need for immediate resolution. [I]nterlocutory review is particularly appropriate
when it promises to spare the parties and the district court the expense and burden
of litigating the matter to final judgment only to have it inevitably reversed by this
Court on appeal after final judgment. Id. (quotation omitted).
At the very least, the district courts order implicates legal questions about
which there is a compelling need for immediate resolution. According to that
order, individual, varying subjective issues may be inferred and treated as a
common issue whenever they may affect a large number of class members, and
predominance is satisfied by leaving for a later stage numerous issues that will
require separate, individual trials after a class trial.
These are issues of
fundamental importance to the development of the law of class actions.

Sumitomo, 262 F.3d at 140. Interlocutory review is especially appropriate because
the certification order rests on such doubtful footing and will inevitably alter
settlement incentives. See Hevesi, 366 F.3d at 80.
I.
There Is A Compelling Need For Immediate Review Of The District

Courts Certification Of Classes Widely Populated By Investors With
Varying Degrees Of Knowledge Of Allegedly Omitted Information.
The district court erred in certifying two subclasses of investors whose
varying degrees of knowledge of the alleged omission admittedly requires

subjective inquiries for each and every investor. Op. 31. In re IPO reversed
certification of an investor class because widespread knowledge of the alleged
omissions and misrepresentations would precipitate individual inquiries as to the
knowledge of each member of the class, and defeated predominance. 471 F.3d at
43-44.
Here, the district court recognized that varying knowledge is also
widespread among these plaintiffs and potential class members. Op. 31, 35.
Yet the district court decline[d] to follow In re IPO, instead holding that
knowledge is so widespread it presents yet another common questionnamely,
whether all investors should be charged with actual knowledgeeven though
knowledge is admittedly a subjective inquiry for each and every investor. Op.
31, 35, 40.
The district court erred in holding that the prevalence of subjective
individual issues falling under one labelhere, knowledgecreates yet another
common question. Op. 35. A question is not common because it must be asked
of each individual class member. The rule is the exact opposite. Under Wal-Mart
Stores, Inc. v. Dukes, 131 S. Ct. 2541, 2550-51 (2011), [c]ommonality requires a
question of such a nature that it is capable of classwide resolutionwhich means
that determination of its truth or falsity will resolve an issue that is central to the
validity of each one of the claims in one stroke. Where, as the district court
10
acknowledged, a large number of plaintiffs and potential class members had

varying degrees of knowledge, Op. 31, actual subjective knowledge cannot be
determined in one stroke. The fact that one investor has knowledge would not
preclude another investor from arguing that it lacks knowledge, just as the fact that
one investor lacked knowledge would not preclude a defendant from defending
against another plaintiff by arguing knowledge.
Instead of rejecting class certification because of the prevalence of
individual evidence, the district court converted the issue of actual knowledge to a
common one because the information, though varied, was disseminated widely.
That alone was error. Allowing lead plaintiffs to litigate claims on behalf of
thousands of class members whose varying claims and defenses will not stand or
fall with the lead plaintiffs is the antithesis of what Rule 23 allows. See Myers v.
Hertz Corp., 624 F.3d 537, 550 (2d Cir. 2010) (certification denied where evidence
showed some variances on central issues); McLaughlin v. Am. Tobacco Co., 522
F.3d 215, 226 (2d Cir. 2008) (reversing certification where there were differences
in plaintiffs knowledge and varying degrees of reliance on misrepresentations).
The district court then went on to adopt Plaintiffs suggestion that
Defendants could make a class-wide knowledge argument on summary judgment
that a reasonable investors actual knowledge of the Facebook revenue cuts can
be inferred from the broad spread of this information. Op. 20; see also id. at 35.
11
But there is no such thing as a presumption of actual knowledge.5 As this Court

has made clear, the actual knowledge standard is not what a reasonable investor
should have known, but what each investor actually knew.
N.J. Carpenters
Health Fund v. Royal Bank of Scotland Grp., PLC, 709 F.3d 109, 127 n.12 (2d Cir.
2013); see McLaughlin, 522 F.3d at 233-34 & n.10 (rejecting presumption of
unawareness and finding predominance not satisfied where issues, including
actual notice, would require a more individualized inquiry). And Rule 23
cannot be used to create or enlarge substantive rights, such as an element of a
claim or defense. See Shady Grove Orthopedic Assocs., P.A. v. Allstate Ins. Co.,
559 U.S. 393, 408 (2010) (plurality) (A class action merely enables a federal
court to adjudicate claims of multiple parties at once[; ] it leaves the parties
legal rights and duties intact and the rules of decision unchanged.); Police & Fire
Ret. Sys. Of City of Detroit v. IndyMac MBS, Inc., 721 F.3d 95, 109 (2d Cir. 2013)
(the Rules Enabling Act forbids interpreting Rule 23 to abridge, enlarge or modify
5
Unlike knowledge, there is a presumption of reliance in the securities fraud

context, and the district court therefore erred in relying on In re Vivendi
Universal, S.A. Sec. Litig., 284 F.R.D. 144, 155 (S.D.N.Y. 2012). That case
involved a securities fraud class action in which the class invoked the fraud-onthe-market reliance presumption, and the defendant did not dispute
predominance or that reliance may be largely resolved by class-wide proof.
In re Vivendi Universal, S.A., 242 F.R.D. 76, 90 (S.D.N.Y. 2007). The
defendant waived its individual reliance challenges for approximately 98
percent of damages claimants but preserved its individual challenges as to
certain large claimants. Final Principal Br. for Vivendi at 28, In re Vivendi
Universal, S.A. Sec. Litig., No. 15-180 (2d Cir. Aug. 19, 2015), Dkt. No. 141.
12
any substantive right[s]) (quotation omitted).

Even the district court did not follow its new class wide actual knowledge
defense. It excluded some investors from the class because of their knowledge,
Op. 5-6, 39, created two subclasses because of knowledge differences, Op. 18-20,
and moved some class members from one subclass to the other without
explanation. Op. 52-53. Ultimately, the district court acknowledged that if its
newly-minted class-wide knowledge defense failed, knowledge would have to be
litigated in an individualized phase involving separate jury trials if necessary.
Op. 48. But this Court has made clear that class certification is not appropriate
where the central disputed issues must be litigated in a series of mini-trials.
Moore v. PaineWebber, Inc., 306 F.3d 1247, 1253 (2d. Cir. 2002); see also In re
IPO, 471 F.3d at 44.6
The district court erroneously refused to follow In re IPO on the ground that
The district court relied extensively on a California district court case, In re DJ

Orthopedics, Inc., 2003 U.S. Dist. LEXIS 21534 (S.D. Cal. Nov. 16, 2003), that
certified two subclasses of stock purchasers, one for those who received a
uniform disclosure of information, id. at *24, and another for those who did
not, id. at *25. The case is inconsistent with In re IPO and in any event
inapposite because there admittedly was no uniform disclosure here; class
members had varying degrees of knowledge. Op. 18, 31. In the
misrepresentation context, such variations preclude class certification. See
Moore, 306 F.3d at 1253 (fraud actions based on uniform misrepresentations
are appropriate subjects for class certification, but [w]here there are material
variations in the nature of the misrepresentations made to each member of the
proposed class, class certification is improper).
13
actual knowledge arises as a defense under the Securities Act. Op. 40. This makes
no sense, given that In re IPO addressed both fraud claims and the Securities Act
disclosure claims plaintiffs raise here. 471 F.3d at 28. The district court also gets
the law wrong. Absence of actual knowledge is an element of Section 12. See 15
U.S.C. 77l(a)(2). Most important, even for Section 11, where actual knowledge
is a defense, this Court issued a clarifying order in In re IPO reaffirming that
widespread knowledge defeats predominance for Section 11 claims. In re IPO
Sec. Litig., 483 F.3d 70, 73 & n.1 (2d Cir. 2006).7 In re IPO is fully consistent
with this Courts ruling that district courts may not give[] the defense less
weight in determining whether overall class certification would serve the goals of
the predominance requirement.
Myers, 624 F.3d at 551. Indeed, Wal-Mart
prohibits class actions where a defendant will not be entitled to litigate its
statutory defenses to individual claims. 131 S. Ct. at 2561.
Nor do the district courts exclusions and subclasses save its certification
order. Despite recognizing that Defendants put forth evidence that investors at
numerous institutions, including lead plaintiffs advisors, gathered, inferred, or
were informed of some aspects of what was conveyed in the Herman Calls or
The district court relied on dicta in other district court cases mistakenly
suggesting In re IPO is limited to claims under the Securities Exchange Act of
1934. Op. 41. This error provides yet another reason to grant review to correct
the development of class action law.
14
Syndicate Analyst Revisions, Op. 18 n.6,8 the district court excluded only the 19
institutions, Op. 6, and one individual, id. at 38, that plaintiffs hand-selected. As
Tab Ds comparison between excluded and non-excluded investors confirms,
numerous non-excluded investors face individual knowledge issues at least as
serious as those facing excluded investors. It was error to certify a class that still
includes massive numbers of investors that face individual subjective knowledge
issues. See In re IPO, 471 F.3d at 43-44 (exclusion[s] do not save certification
where there still needs to be many individual inquiries for those that remain).
For example, with respect to lead plaintiffs investment advisors, the court
found that the fact of actual knowledge defenses and the individualized inquiries
required to adjudicate them more appropriately goes to predominance. Op. 2324. But the district court then erroneously ruled those individualized inquiries
could be treated as a common issue and thus kept all but one of the lead plaintiffs
advisors in the class. This has the law backwards. The fact that each member of
In footnote 6 of its Order, the district court identified 26 institutional investors

that Defendants highlighted at the class certification hearing. Those investors
are just the tip of the iceberg (although it required hundreds of hours of
intensive discovery to develop the record for even these investors). The record
includes evidence that underwriters representatives told many other investors,
including lead plaintiffs advisors, about the allegedly omitted information, A1556, A-1565, A-667, as well as declarations and documents from other
investors that they knew varying degrees of information about the revisions and
the mobile impact on revenues, A-70-72, A-64, A-867, A-1782.7-1782.9, A1810-14, A-1731-32. See also Tab D.
15
the class is potentially subject to his or her own unique defensefar from
resolving all issues in favor of certificationonly highlights the thousands of
individualized inquiries the class requires. Mazzei v. Money Store, 288 F.R.D. 45,
58-59 (S.D.N.Y. 2012).
This demonstrates why the class must fail the
predominance requirement. Id. at 59.

The district courts ruling is all the more arbitrary in that it certified a retail
subclass on the ground that Defendants presented much less evidence of actual
knowledge of retail investors.
Op. 37.
To begin with, the district court
erroneously discounted some evidence because it hardly suffices to meet the high
bar of the actual knowledge standard.
Op. 39.
It is black-letter law that
defendants need not prove actual knowledge for individual class members at the
class certification stage. See N.J. Carpenters Health Fund v. Rali Series 2006QO1 Trust, 477 F. Appx 809, 812 (2d Cir. 2012). Rather, certification must be
denied where, as here, there is a demonstrable need for individual inquiries as to
the knowledge of each member of the class. In re IPO, 471 F.3d at 44.
The district court also mischaracterized the evidence of retail class
members actual knowledge. The district court assumed the evidence was relevant
only to the institutional subclass because it determined that institutional included
those individuals who purchased their shares through institutional investors if
the investor made the purchase decision. Op. 38. But that was incorrect and also
16
creates an additional layer of individual issues. First, an investment advisor has no

standing to bring suit on behalf of an individual purchaser and thus cannot be the
class member. See W.R. Huff Asset Mgmt. Co. v. Deloitte & Touche LLP, 549 F.3d
100, 111 (2d Cir. 2008). Second, the order gives no guidance for deciding the
critical question of whether the investor made the purchase decision, Op. 38,
absent individual inquiries. This failure alone warrants review, as it contradicts
Brecher v. Republic of Argentina, 806 F.3d 22 (2d Cir. 2015), which held that it
must be administratively feasible for the court to determine whether a particular
individual is a member. Id. at 24 (quotation omitted).
II.
There Is A Compelling Need For Immediate Review Of The District

Courts Ruling That Knowledge And Conflicting Arguments About
Loss Causation And Damages Can Be Managed At A Later Stage.
The district court compounded its error in crafting a novel common issue
out of varying degrees of knowledge when it held that other issues, including
conflicting arguments about loss causation and damages raised common issues or
could be left for separate trials at a later stage. Op. 46; see also id. at 26.
First, the court below refused to apply Comcasts requirements that, at the
class certification stagenot laterthe proposed class plaintiffs damages case
must be consistent with its liability case and measure only those damages
consistent with [p]laintiffs [liability] theory. Comcast Corp. v. Behrend, 133 S.
Ct. 1426, 1433 (2013). The district court ruled Comcast did not apply because the
17
Securities Act damages follow a statutory formula other than actual injury. Op.
44. This ruling conflicts with Fort Worth Emps. Ret. Fund v. J.P. Morgan
Chase & Co., 301 F.R.D. 116, 142 (S.D.N.Y. 2014), which applied Comcast to
deny class certification for Securities Act damages. Although the Securities Act
provides an initial statutory formula for damages, the Act also subtracts any
damages for which loss causation is lacking. 15 U.S.C. 77k(e), 77l(b). As a
result, Securities Act damages equal the price decline [that] actually resulted
from the misstatement. Akerman v. Oryx Commcns., Inc., 810 F.2d 336, 343 (2d
Cir. 1987); see also Schuler v. NIVS Intellimedia Tech. Grp., Inc., 2013 WL
944777, at *9-10 n.8 (S.D.N.Y. Mar. 12, 2013) (Securities Act damages are zero
when plaintiffs losses may not be attributed to the misrepresented facts).
Comcast forbids certification in cases like this because there is an
inconsistency between plaintiffs liability and actual damages theories. Plaintiffs
limited their liability theory to the alleged failure to disclose that Facebook revised
its projections after they were forced to concede that all institutional investors
knew about underwriters revised projections. Pls. Class Reply at 4; Pls. Class
Certification Mem. at 13-14, 23.
Plaintiffs liability theory thus excluded
disclosures relating to underwriters revisions. See id. at 7, 23, 28. In contrast,

their actual damages theory has included the $3.03 decline in Facebooks price on
May 22, 2012over 40% of the classs alleged damagesthat plaintiffs have
18
attributed to a May 22, 2012 media report of underwriters revised projections.

Compl. 184; Mot. to Dismiss Opp. at 18-21; Pls. Class Reply at 57-58.
Second, making that contradiction worse, both subclasses are represented by
the same counsel but have opposite positions on what caused the May 22 decline.
The institutional subclass must argue that the May 22 decline was not caused by
the May 22 media report of the underwriters revisions, as loss causation precludes
recovery when a plaintiff already knew information later reported in a
journalistic story. In re Omnicom Grp., Inc. Sec. Litig, 597 F.3d 501, 512 (2d
Cir. 2010). But the retail subclass, whom plaintiffs contend did not know of
underwriters revisions before May 22, will argue that the May 22 decline was
caused by the May 22 media report. In re Literary Works in Electronic Databases
Copyright Litigation, 654 F.3d 242 (2d Cir. 2011), held that a conflict requires
denial of certification where, as here, each subclass would be represented by the
same counsel, would seek compensation in different ways, but would be
without independent counsel pressing [its own claims]. Id. at 251, 253.
Third, the district court also erred in concluding that the common question
concerning the damages offsets required by the $26.5 million settlement for
NASDAQs misconduct in the Facebook IPO outweighed individual issues. Op.
19
45.9
NASDAQ injured many class members in individual ways that are not
captured by the extent to which NASDAQ also caused Facebooks stock price to
decline. NASDAQ prevented some class members from selling on May 18. See
A-147-48, A-978 -978.1. In addition, NASDAQs May 18 delays in sending trade
confirmations caused some class members to submit repeat orders and therefore to
buy extra Facebook shares that they otherwise never wanted. Determining how
many shares NASDAQ forced some class members to own after May 18, and the
resulting settlement offsets for those shares, requires countless individual
proceedings. See McLaughlin, 522 F.3d at 227 (reversing class certification where
determining the portion of plaintiffs injury attributable to defendants
wrongdoing would require an individualized inquiry). It is no answer to say
individual damages can be administratively managed after a class-wide trial.
Op. 45. Courts deny certification where, as here, lead plaintiffs do not provide any
model showing, concretely, how [individual] damages would be calculated after
a class-wide trial without separate trials. Sicav v. James Jun Wang, 2015 WL
268855 at *6 (S.D.N.Y. Jan. 21, 2015); accord Fort Worth, 301 F.R.D. at 141.
CONCLUSION
For the foregoing reasons, the Court should grant this petition.
As noted above, at page 3, the district courts treatment of the NASDAQ

settlement offsets is already before this Court in recently-filed appeals.
20
December 28, 2015
Respectfully submitted,
Susan E. Engel
655 Fifteenth St. NW
Washington, DC 20005
Telephone: (202) 879-5000
Facsimile: (202) 879-5200
/s/ Andrew B. Clubok

Andrew B. Clubok
Brant W. Bishop, P.C.
Nathaniel Kritzer
Adam B. Stern
New York, NY 10022
Telephone: (212) 446-4800
Facsimile: (212) 446-4900
Tariq Mundiya
Richard D. Bernstein
Todd G. Cosenza
Elizabeth J. Bower
Sameer Advani
WILLKIE FARR & GALLAGHER LLP WILLKIE FARR & GALLAGHER LLP
1875 K Street, NW
787 Seventh Avenue
New York, NY 10019-6099
Telephone: (202) 303-1000
Telephone: (212) 728-8000
Facsimile: (202) 303-2000
Facsimile: (212) 728-8111
Counsel for Facebook, Inc., and Individual Facebook Defendants
James P. Rouhandeh
Charles S. Duggan
Andrew Ditchfield
New York, NY 10001
Telephone: (212) 450-4000
Facsimile: (212) 701-5800
Counsel for Underwriter Defendants
21
CERTIFICATE OF SERVICE & ELECTRONIC MAIL FILING

15-____ In re Facebook, Inc. IPO Securities And Derivative Litigation
I hereby certify that I caused the foregoing Petition By Defendants For
Leave To Appeal Class Certification Order Pursuant To Fed. R. Civ. P. 23(f) to be
served on counsel for Plaintiffs via Electronic Mail pursuant to Local Appellate
Rule 25.1 with one (1) courtesy copy via Federal Express Overnight Delivery:
Max W. Berger
Salvatore J. Graziano
John J. Rizio-Hamilton
BERNSTEIN LITOWITZ BERGER &
GROSSMANN LLP
1285 Avenue of the Americas
New York, NY 10019
Tel: (212) 554-1400
Thomas A. Dubbs
James W. Johnson
Thomas G. Hoffman, Jr.
LABATON SUCHAROW LLP
140 Broadway
New York, NY 10005
Tel: (212) 907-0700
Co-Lead Counsel For Lead Plaintiffs

and the Proposed Class
Co-Lead Counsel for Lead Plaintiffs,

Proposed Class Representatives Sharon
Morley, and the Proposed Class
Steven E. Fineman
Nicholas Diamand
LIEFF CABRASER HEIMANN &
BERNSTEIN LLP
250 Hudston St., 8th Floor
New York, NY 10013
Tel: (212) 355-9500
Additional Counsel for For Additional
Named Plaintiffs and Proposed Class
Representatives Jose G. Galvan and
Mary Jane Lule Galvan
Frank R. Schirripa
HACH ROSE SCHIRRIPA &
CHEVERIE LLP
185 Madison Ave.
New York, NY 10016
Tel: (212) 213-8311
Additional Counsel for Proposed Class
Representatives Eric Rand, and Paul
and Lynn Melton
22
I certify that an electronic copy was sent to the Court via Electronic Mail at
newcases@ca2.uscourts.gov. Four (4) hard copies of the foregoing Petition for
Permission to Appeal Pursuant to Federal Rule of Civil Procedure 23(f) will be
delivered to the Clerks Office by hand delivery upon the Courts re-opening at:
Clerk of Court
United States Court of Appeals, Second Circuit
United States Courthouse
500 Pearl Street, 3rd floor
(212) 857-8500
on this 28th day of December 2015.
/s/ Alessandra Kane
Alessandra Kane
Record Press, Inc.
23
UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK
--------------------------- ------------x
IN RE FACEBOOK, INC., IPO SECURITIES AND
DERIVATIVE LITIGATION,
INION
MDL No. 12-2389
UNDER SEAL
----------x
A P P E A R A N C E S:
for Lead Plaintiffs and

ed Class
140 Broadway
New York, NY 10005
By:
Thomas A. Dubbs, Esq.
James W. Johnson, Esq.
Thomas G. Hoffman, Jr., Esq.
Attorneys for Lead Plaintiffs, Proposed Class
Representative Morley and the Proposed Class
BERNSTEIN LITOWITZ BERGER & GROSSMAN LLP
1251 Avenue of the Americas, 44th Floor
New York, NY 10019
By: Max W. Berger, Esq.
Salvatore J. Graziano, Esq.
John Rizio-Hamilton, Esq.
Additional Named Plaintiff and
Proposed Class Representatives Mr. & Mrs. Galvan
LIEFF CABRASER HEIMANN & BERNSTEIN LLP
250 Hudson Street, Sth Floor
New York, NY 10013
By: Steven E. Fineman, Esq.
Nicholas Diamand, Esq.
Attorneys for Proposed Class Representatives

Rand and Mr. & Mrs. Melton
HACH ROSE SCHIRRIPA LLP
185 Madison Ave.
New York, NY 10016
By: Frank R. Schirripa
Attorneys for Defendant Facebook

655 Fifteenth St. NW
By:
Susan E. Engel, Esq.
New York, NY 10022
By: Andrew B. Clubok, Esq.
Brant W. Bishop, Esq.
Nathaniel Kritzer, Esq.
Adam B. Stern, Esq.
1875 K Street, NW
Richard D. Bernstein, Esq.
Elizabeth J. Bower, Esq.
WILKIE FARR & GALLAGHER LLP
787 Seventh Avenue
New York, NY 10019-6099
By:
Tariq Mundiya, Esq.
Todd G. Cosenza, Esq.
Sameer Advani, Esq.
Sweet, D. J.
Court-appointed Lead Plaintiffs North Carolina Department

of State Treasurer on behalf of the North Carolina Retirement
Systems ("North Carolina DST"), Arkansas Teacher Retirement
Systems ("Arkansas Teacher"), Fresno County Employees'
Retirement Association ("Fresno"), Individual Named Plaintif
Jose G. Galvan and Mary Jane Lule Galvan (the "Galvans"), and
additional proposed individual class representatives
c Rand
("Rand"), Paul and Lynn Melton (the "Meltons"), and Sharon

Morley ("Morley")
(collectively, "Plaintiffs"), have moved
pursuant to Federal Rule of Civil Procedure 23 (a),
(b) (3),
(c) (5), and (g) seeking certification of a Class of investors in

the initial public of
ring (the "IPO") of Facebook, Inc.
("Facebook" or the "Company"), for appointment as Class

Representatives, and appointment of Bernstein Litowitz Berger &
Grossman LLP and Labaton Sucharow LLP as Class Counsel. For the
reasons set forth below, the motions are granted.
I. Prior Proceedings
The procedural history and factual background of this

litigation has been detailed extensively
this Court.
See,
~'
various opinions by
In re Facebook, Inc., IPO Sec. & Deriv.
~~'""'-'
986 F.Supp.2d 487, 492-93 (S.D.N.Y. 2013) motion to
certify appeal denied sub nom. In re Facebook, Inc., IPO Sec. &
Derivative Litig., 986 F. Supp. 2d 524
(S.D.N.Y. 2014)
("MTD
Opinionn); see also In re Facebook, Inc., IPO Sec. & Derivative

tig., 288 F.R.D. 26, 31-34
Opinion").
(S.D.N.Y. 2012)
("Consolidation
Familiarity with the general background of this case
as provided in the Court's previous opinions is assumed.
The instant ffiotion,
filed December 23, 2014, concerns the
Consolidated Securities Action. Investors allege that Facebook

and certain officers violated Sections 11, 12(a) (2), and 15 of
the Securities Act in negligent misstatements or omissions
surrounding the Company's May 18, 2012 IPO. See MTD Opinion
II.
Plaintiffs seek certification to proceed as a class
pursuant to Federal Ru
of Civil Procedure 23 defined as
follows:
All persons and entities who purchased or otherwise
acquired the Class A common stock of Facebook, Inc.
("Facebook" or the "Company") in or traceable to Facebook's
initial public offering ("IPO"), which occurred on or about
May 17, 2012 and were damaged thereby.
Pls.' Mot. at 5. 1 In the alternative, Plaintif
request
This particular motion has an extensive record. In the

interests of space and ease of reference, full
tations and
their corresponding short form are collected here and will
appear hereinafter. Plaintiff's Memorandum of Law in Support of
Motion for Class Certification ("Pls.' Mot."); Declaration of
Salvatore J. Graziano in Support of Plaintiff's Motion for Class
1
classi
cation of two subclasses, one for retail investors and
one for institutional investors, as follows:

(1)
The Institutional Investor Subclass, consisting

the
institutional investors that purchased or otherwise
acquired Facebook Class A common stock in or traceable
to the Company's IPO allocations as listed in Exhibit
42. 2 The proposed Class Representatives for this
Subclass are North Carolina DST, Arkansas Teacher, and
Fresno.
(2)
The Retail Investor Subclass, consisting of all retail
investors who purchased or otherwise acquired Facebook
Class A common stock in or traceable to the Company's
IPO, and were damaged thereby. The proposed Class
Representatives for this Subclass are the Galvans,
Rand, the Meltons, and Morley.
Pls.' Mot. at 6.
Excluded from the class/subclasses are Defendants, present

or former executive officers of Facebook and
ir immediate
family members. Pls.' Mot. at 5n.3. In reply and oral argument,

Plaintiffs have offered several exclusions from the Class on the
basis that Defendants' affirmative defense of actual knowledge
Certification ("Graziano Deel. 1"); Defendant's Memorandum of

Law in Opposition to Plaintiff's Motion for Class Certification
("Defs.'s Opp."}; Declaration of Adam B. Stern in Support of
Defendant's Opposition to Plaintiff's Motion ("Stern Deel.") and
Appendix ("A-"}; Plaintiff's Reply Memorandum of Law in Further
Support of Motion for Class Certification ("Pls.' Reply"};
Declaration of Salvatore J. Graziano
Further Support of
Plaintiff's Motion for Class Certification ("Graziano Deel. 2");
Defendant's Sur-Reply Memorandum of Law in Opposition to
Plaintiff's Motion for Class Certification ("Defs.' Sur-Reply");
October 7, 2015 Class Certification Hearing Transcript ("Tr.");
Plaintiff's October 7, 2015 Class Certification Hearing Exhibit
("Pls.' Ex."}; Defendant's October 7, 2015
ass Certification
Hearing Exhibit ("Defs.' Ex.").
2 Graziano Deel. 1, Ex. 42.
is either established or close enough that it is not worth

rebutting. Tr. 21:19-22:6. Their final comprehensive list of
exclusions is as follows: American Century Investment
Management,
ue Ridge, Capital Research and Management Company,
Chilton Investment Company, Clovis Capital Management, Columbia

Management Investment Advisors, Fidelity Management and Research
Company, Jennison Associates, Kingdon Capital Management, Loews,
Maple Lane Capital, Schroder Investment Management North
America, Soros Fund Management, Surveyor Capital, T. Rowe Price
Distribution Group, Teachers Insurance Annuity Association of
America, Turner Investments, Weiss Multi-Strategy Advisers, and
Wellington Management Company (collectively, the "Exclusions").
Discovery has been ongoing during submission of the motion

for class certification. Discovery commenced on February 7,
2014. Stip. and Pretrial Scheduling Order (Feb. 5, 2014), ECF
No. 209. Production of documents relevant to class certification
necessitated extension of discovery deadlines, and by
stipulation and Order, the deadlines were modified on August 18,
2014. Stip. and Pretrial Scheduling Order (Aug. 18, 2014), ECF
No. 249. Deadlines were again extended by Orders on October 28,
2014 and September 10, 2015. Stip. and Modified Pretrial
Scheduling Order (Oct. 28, 2014), ECF No. 253; Stip. and
Modified Pretrial Scheduling Order (Sept. 10, 2015), ECF No.
346. Pursuant to the latest Modified Pretrial Scheduling Order,

fact discovery is scheduled to close December 4, 2015, and
expert discovery is scheduled to close on July 3, 2016.
Oral argument was held and the motion was deemed fully
submitted on October 7, 2015.
I. The Relevant Facts
Given the extensive factual background detailed in this

Court's other decisions, the following facts provide only a
truncated retelling of undisputed events for purposes of
approaching the instant motion.3
On February 1, 2012,
Facebook publicly filed its initial
registration statement with the SEC ("Registration Statementu)

for its upcoming initial public offering. The Registration
Statement referenced Facebook's historical performance data and
its primary revenue source, advertisements.
It also made mention
3 The facts that follow are drawn from filings in this case and
are not in dispute except as noted. For a detailed and cited
recitation of the facts in the securities litigation portion of
this case, see MTD Opinion at 493-505; Consolidation Opinion at
31-33. For an overview of the issues with Nasdaq's technical
systems issues trading Facebook stock during the relevant time
period, see Consolidated Opinion at 33-34.
7
of the opportunities for growth in the mobile market, the risks

associated with attempting to monetize that market by displaying
ads on mobi
devices
(which Facebook had not yet done), and the
"product decisions" involved with balancing the revenue needs

for advertisement and the user experience. On March 7, 2012,
Facebook responded to an SEC comment letter by revising
Registration Statement to include more information clarifying

the trend of increasing mobile usage and completed first quarter
financial results.
Facebook provided these financial results and internal

projected revenue guidance to the investment banks underwriting
the IPO, which the underwriter analysts
(the "Syndicate
Analysts") used to generate their own estimates and predictions

of Facebook's revenues and financial performance for use in
marketing the IPO. Facebook and its underwriters signed unique
Non-Disclosure Agreements controlling the flow of information
Facebook provided.4
On May 7, 2012, Facebook held its first live roadshow
4 See
Graziano Deel., Ex. 2 (Morgan Stanley Non-Disclosure
Agreement); see also Pls.' Mot. 13 (collecting citations). The
parties disagree over the effect of the Non-Disclosure
Agreements. See
., Pls.' Mot. at 5, 7, 13; Defs.' Opp. at
14n.9.
presentation. Between this first presentation and the following

day, Facebook cut its internal projected revenue figures for the
second quarter of 2012.
On May 9, Facebook filed a Free Writing
Prospectus (the "FWP") and an Amended Registration Statement

warning further about the possible negative revenue implications
for increased user transition to mobile. Beginning almost
immediately thereafter, Facebook's Treasurer Cipora Herman
("Herman") made nineteen calls to Syndicate Analysts
(the
"Herman Calls" or the "Calls") follo'wing a script describing

mobile's downward pressure on revenue, and notifying them that
Facebook had revised its own Q2 projections downward.
The
Syndicate Analysts revised their own models and estimates down.

At least some Syndicate Analysts then reached out to others, and
at least some of the projection information flowed beyond the 19
Herman called. Though the parties agree on the fact that leakage
occurred, they dispute nearly everything else, including the
scope of what was relayed, to whom, and to what effect(s).
Facebook managed to hold on to its preferred pricing at $38

per share. The IPO went forward on May 17, 2012 selling in
excess of 421 million shares, one of the largest initial public
offerings in history. On May 18, 2012, the stock began publicly
trading. Prices initially exceeded projections, opening at
$42.05, but the surge did not last.
The stock dipped and closed
that day at $38.23.
On the following two trading days, Facebook
stock continued to tumble, closing at $34.03 on May 21, and $31

on May 22. As the stock price fell,
interest in the cause
increased, and the information conveyed in the Herman
ls
leaked further outward from the original 19 recipients.

Facebook's stock price did not recover until more than a year
later, on July 31, 2013.
Plaintiffs allege
the FWP and Amended Registration
Statement constitute material misstatements or omissions by

failing to disclose what Facebook knew at the time with
certainty: the previously disclosed possibility that mobile
might negatively affect revenue had come to fruition causing
Facebook to internally
se its own revenue forecast, and this
downward trend was not off set by product
sions. See MTD
Opinion at 506-522.
II.Applicable Standard
To obtain certification, a proposed class must meet Federal

Rule of Civil Procedure 23(a)'s prerequisites of numerosity,
com.~onality,
typicality, and adequacy of representation. Fed. R.
Civ. P. 23(a); Amgen Inc. v. Connecticut Ret. Plans & Trust

Funds, 133 S. Ct. 1184, 1191, 185 L.
10
. 2d 308 (2013}.
In addit
, the proposed class must satisfy one of three
requirements listed in Rule 23(b).

Amgen, 133 S. Ct. at 1191.
Fed. R. Civ. P. 23(b);
Plaintiffs have moved under Rule
23{b) (3), which requires that "the court finds that the
questions of law or fact common to class members predominate
over any questions affecting only individual members, and that a
class action is superior to other available methods for
and efficiently adjudicating the controversy."
irly
. R. Civ. P.
23(b)(3).
The Second Circuit has described the standard of proof

governing class certification:
"(1) a district judge may certify a class only after making
erminations that each of the Rule 23 requirements has
been met; {2) such determinations can be made only if the
judge resolves factual disputes relevant to each Rule 23
requirement and finds that whatever underlying
relevant to a particular Rule 23 requirement have
established and is persuaded to rule, ba
on the relevant
s and the applicable legal standard, that the
requirement is met; (3) the obl
ion to ma
such
dete
nations is not lessened by overlap between a Rule 23
requirement and a mer s issue, even a merits issue that is
identical with a Rule 23 requirement; (4) in making such
determinations, a district judge should not assess any
ct of the merits unrelat
Rule 23 requirement"
~~~----------~~~~~~~~_,,,,_~~~~~--' 471 F.3d 24, 41 {2d
r. 2006)
("In re IPO I")
sion cl
on den
l of reh'
sub nom. In re Initial Pub. Offering Sec. Litig., 483 F.3d 70

(2d Cir. 2007)
("In re IPO II"). "'[T]he standard of proof
11
applicable to evidence proffered to meet' the requirements of

Rule 23 [is] a 'preponderance of the evidence.' '' In re Flag
Telecom Holdings, Ltd. Sec. Litig., 574 F.3d 29, 35 (2d Cir.
2009)
(quoting Teamsters Local 445 Freight Div. Pension Fund v.
Bombardier Inc., 546 F.3d 196, 202
(2d Cir. 2008)).
"In determining whether class certification is appropriate

in a securities action, the Second Circuit has directed district
courts to apply Rule 23 according to a liberal rather than a
rest
ctive interpretation." Billhofer v. Flamel Techs., S.A.,
281 F.R.D. 150, 155 (S.D.N.Y. 2012)

Parsle
Petrol
(citing
Co., 147 F.R.D. 51, 54
v. Wolf Corp., 406 F.2d 291, 298, 301
lt v. Parker &
(S.D.N.Y. 1993); Green
(2d Cir.1968), cert.
denied, 395 U.S. 977, 89 S. Ct. 2131, 23 L.Ed.2d 766 {1969)}.

"[I]f there is to be an error made, let it be in favor and not
against the maintenance of the class action, for it is always
subject to modification should later developments during the
course of the trial so require." Green, 406 F.2d at 298 (citing
Esplin v. Hirshi, 402 F.2d 94
(10th Cir. 1968)).
12
III.
The Proposed Subc1asses Satisfy Ru1e 23(a)
a. Numerosi ty
"For class certification to be appropriate, the proposed

class must be so numerous that joinder of all of its individual
members would be impracticable." Billhofer, 281 F.R.D. at 156;
See also Fed.R.Civ.P. 23(a) (l); In re NYSE
~~~~~~~~~~~~~~~
Litig., 260 F.R.D. 55, 69 70 (S.D.N.Y.2009). Joinder need not be

impossible, but only difficult or inconvenient enough to make
class treatment appropriate. Cent. States Se. & Sw. Areas Health
& Welfare Fund v. Merck-Medco Managed Care, LLC, 504 F.3d 229,
_I_n~r_e~N_A_S~~_M_a~r_k_e_t_-_M_a_k_e_r_s
244-45 (2d Cir. 2007); see also
Antitrust Litig., 169 F.R.D. 493, 508
(S.D.N.Y. 1996). A class
of more than 40 commands a presumption of sufficient numerosity.

Billhofer, 281 F.R.D. at 156; NYSE Specialists, 260 F.R.D. at 70
(citing Consol. Rail Corp. v. Town of Hyde Park, 47 F.3d 473,
483
(2d Cir. 1995)); see also In re Sadia, S.A. Sec. Litig., 269
F.R.D. 298, 304 (S.D.N.Y. 2010).
"In securities fraud class actions relating to publicly

owned and nationally listed corporations, the numerosity
requirement may be satisfied by a showing that a large number of
shares were outstanding and traded during the relevant period."
13
In re Vivendi Universal, S.A., 242 F.R.D. 76, 84 (S.D.N.Y. 2007)

("Vivendi I") (quoting Teachers' Ret. Sys. of La. v. ACLN Ltd.,
No. 01 Civ. 11814(LAP}, 2004 WL 2997957, at *3 (S.D.N.Y. Dec.
27, 2004)); see also In re Globalstar Sec. Litig., No. 01 Civ.
1748(PKC), 2004 WL 2754674, at *3*4
(S.D.N.Y. Dec.1, 2004); In
re Deutsche Telekom Ag Sec. Litig., 229 F.Supp.2d 277
(S.D.N.Y.
2002}. 421,233,615 shares were sold in the Facebook IPO.

Graziano Deel. 1, Ex. 40.
Whether in one class or two, this
case involves a great deal more than 40 plaintiffs, making

joinder impracticable and establishing numerosity.
b. Commonality
"Rule 23(a) (2) demands the existence of common questions of

law or fact between members of the class." Billhofer, 281 F.R.D.
at 156. Common questions must also "generate common answers apt
to drive the resolution of the litigation." Wal-Mart Stores,
Inc. v. Dukes, 131 S. Ct. 2541, 2551, 180 L. Ed. 2d 374 (2011)
(citation omitted}. However, "commonality does not mandate that
all class members make identical claims and arguments or that
the circumstances of their securities purchase be identical."
Id.
(citing Trief v. Dun & Bradstreet Corp., 144 F.R.D. 193, 198
(S.D.N.Y.1992)
(internal quotation marks omitted)); see also
Port Auth. Police Benevolent Ass'n v. Port Auth., 698 F.2d 150,
14
153-54 (2d Cir.1983)). "The commonality requirement has been

applied permissively by courts in the context of securities
fraud litigation, and minor variations in the class members'
positions will not suffice to defeat certification." Dietri
Bauer, 192 F.R.D. 119, 124
see also
(S.D.N.Y.2000)
Vivendi I, 242 F.R.D. at 84
v.
(citations omitted);
(stating commonality is
"applied permissively in securities fraud litigation
11
)
(citing
In re Nortel Networks Corp. Sec. Litig., No. 01 Civ. 1855(RMB),

2003 WL 22077464, at *3 (S.D.N.Y. Sept. 8, 2003); In re Frontier
Ins. Grp.,
Inc. Sec. Litig., 172 F.R.D. 31, 40 (E.D.N.Y. 1997)).
"Common questions of law and fact are present where the

alleged fraud involves material misrepresentations and omissions
in documents circulated to the investing public, press releases
and statements provided to the investment community and the
media, and investor conference calls." Billhofer, 281 F.R.D. at
156; see also e . .
Darquea v. Jarden Corp., No. 06 Civ. 722,
2008 WL 622811, at *2 (S.D.N.Y. Mar. 6, 2008)
("The alleged
misrepresentation leading to artificially inflated stock prices

relate to all the investors and the existence and materiality of
such misstatements or omissions present important common
issues."); In re Frontier, 172 F.R.D. at 40
(E.D.N.Y. 1997)
(disseminating statements that omitted or misrepresented

material facts deemed common questions) .
15
The existence of large common questions with common answers

in this matter cannot be disputed.
Plaintiffs' primary claim is
that the FWP and Amended Registration Statement contain material

misrepresentations or omissions.
Pls.' Mot. at 18.
Notwithstanding any unique facts as to any
aintiff, the
success or failure of any and all investor claims necessarily

turns on several determinative liability questions the Court has
sustained in its Opinion on Defendants' motion to dismiss:
Was "Defendants' duty under Item 303 .
(1)
. triggered before the
Registration Statement became effective" because "Facebook was

aware of the material negative impact on Facebook's revenues the
Company had suffered as a result of increasing mobile usage and
the Company's product decisions ten days before the IPO?" MTD
Opinion at 513.
(2) Did the risk warnings in the IPO Prospectus
misleadingly represent that Facebook's revenue cut was merely

possible when in fact the trend had already materialized? Id. at
516.
(3) Did Rule 408 of SEC Regulation C require Facebook to
disclose the "known financial effects related to increasing

mobile usage and certain product decisions?" Id. at 522. The
evidence necessary to answer these questions will be the same as
to every Plaintiff, and the answer for any one must necessarily
apply to all others.
The necessity of answering these central
questions for potentially thousands of plaintiffs suffices to

meet the "low hurdleu and permissible application of
16
commonality. See In re Marsh & McLennan Cos., Inc. Sec. Litig.,

No. 04 CIV. 8144 (CM), 2009 WL 5178546, at *9 (S.D.N.Y. Dec. 23,
2009)
(citations omitted); see also Billhofer, 281 F.R.D. at 156
(explaining misrepresentations and omissions alleged in public

filings "are of the sort that courts routinely hold to satisfy
the common question requirement" (citations and internal
quotation marks omitted)); Vivendi I, 242 F.R.D. at 84.
That Defendants intend to bring subjective, individualized

defenses by challenging the actual knowledge of each Plaintiff 5
may defeat commonality, but this is a weighty question for the
predominance analysis.
See
~,
F.2d 1206, 1210 (2d Cir. 1972)
Korn v. Franchard Co
(finding commonality
456
"plainly
satisfied" where the alleged misrepresentations related to all

investors, reserving "the more difficult problem" of whether
reliance posed a common issue for the 12(b) (3) predominance
analysis). Where Plaintiffs have identified a "unifying thread
among the members' claims that warrants class treatment," as
Plaintiffs have here, "(n]ot every issue must be identical as to
each class member." Vivendi I, 242 F.R.D. at 84 (quoting Cutler
v. Perales, 128 F.R.D. 39, 44
(S.D.N.Y.1989)
(internal quotation
5 See~, Defs.' Opp. at 11 ("[F]or each plaintiff's Section 11

claim, Defendants are entitled to prove that at the time of
acquisition the purchaser knew of such untruth or omission."
(citations and internal quotation marks omitted)).
17
marks and
tation omitted).
The individual questions here do
not negate the plain existence of the common liability questions

that must generate common answers applicable to every single
claim in this matter.
However, commonality established, there remains an

administrative question of whether the class certification
analysis should be applied to one class or two in light
Defendants' individualized arguments.
"Rule 23 gives the
district court flexibility to certify subclasses as the case

progresses and as the nature of the proof to be developed at
trial becomes clear."
Marisol A. v. Giuliani, 126 F.3d 372, 379
(2d Cir. 1997); Vivendi I, 242 F.R.D. at 109 ("The Court has the
authority under Ru
23 ( c) ( 4) ( B) of the Federal Rules of Civil
Procedure to divide a class into subclasses.").
Defendants have marshaled an impressive amount of evidence

showing that varying aspects and amounts of the content of the
Herman Calls and the Syndicate Analysts' projections spread to
other institutional investors. See Defs.' Opp. at 22-26. 6 Emails
As a singular example, Natasha Kuhlkin of Jennison Associates

emailed 65 individuals to relay some of the content of the
Herman Calls. Defs.' Ex. A-547. Defendants have put forth
evidence that investors at numerous institutions gathered,
inferred, or were informed of some aspects of what was conveyed
6
18
from Morgan Stanley and JP Morgan show teams of employees

executing an effort to touch base with dozens of investment
institutions regarding the changed circumstances after the
Herman Calls. A-867-891. This evidence applies widely to
institutional investors. Retail investors had an altogether
different experience from institutional investors: they were not
necessarily well connected in the investment world, they were
not subjects of the underwriters' direct marketing efforts to
the same degree or in the same ways, and most significantly,
there was no corresponding systematic effort to reach out to
retail investors after the Herman calls. 7 Pls.' Reply at 24-32.
in the Herman Calls or Syndicate Analyst Revisions, including:

American Century Investment Management (A-14), Alyeska
Investment Group (A-1561), Capital Research Global Investors (A6-7), Capital World Investors (A-17), Chilton Investment Company
(A-61), Clovis Capital Management L.P. (A-1539),
Columbia
Management Investment Advisers (A-1552), Criterion Capital
Management, LLC (A-50; A-59), Federated Kaufmann (A-46.2),
Fidelity (A-16), Gilder Gagnon Howe & Co., LLC (A-70; A-72),
Jennison Associates (A-204; A-206), Lone Pine Capital LLC (A64}, Maple Lane Capital (A-1568), Oppenheimer and Nueberger
Berman (A-1723), Schroder Investment Management (A-98), Alliance
Bernstein (A-1685), Teachers Advisors, Inc. (A-79), TPG-Axon
Management (A-95), Polygon Investments (A-1772-3), UBS Global
Asset Management (A-86), Waddell & Reed Investment Management
(A-91), Weiss Multi-Strategy Advisors LLC (A-1541), Wellington
Management Company (A-89), Winslow Capital Management, LLC (A1556; A-972).
7 Defendants do allege isolated instances of this information
reaching retail investors. See Defs.' Opp at 49 53; see also
IV.a). For example, one individual that learned some of the
relevant information through his father, and another through her
research and analysis as a consumer news writer. See Defs.' Opp.
at
-3; IV.a). Defendants allege that the most widespread
19
Specific merits determination as to what exact information

spread, when, and to whom need not be reached to know that the
answers to these questions have a significant administrative
impact on the case. The record has established that a unique
world of facts applies to institutional investors but not retail
investors. It therefore raises additional conunon questions with
conunon answers, such as whether a reasonable investor's actual
knowledge of the Facebook revenue cuts can be inf erred from the
broad spread of this information. These questions and their
answers are subject to generalized evidence, but will also
require distinguishing between retail and institutional
investors. To avoid confusing the issues and to administratively
manage this exceptionally large case, if any class is to
proceed, two subclasses are necessary.
c. Typicality
Rule 23(a)'s typicality requirement

each class member's c
~'is
satisfied when
im arises from the same course of events,
diffusion of this information to retail investors was through

either media sources, or by imputation to the individuals who
invested through institutions. Defs.' Opp. at 49-54. Facts
regarding the former issue apply to both subclasses, and the
latter issue is addressed infra in section IV.a). Defendants do
not posit that retail investors were systematically connected to
or directly informed by the diffusion of the information between
institutional investors.
20
and each class member makes similar legal arguments to prove the
defendant's liability.' " Cent. States, 504 F.3d at 245 (quoting
Robinson v. Metro-N. Commuter R.R. Co., 267 F.3d 147, 155 (2d
Cir.2001)). Typicality may be found to fail in cases where the
named plaintiff was not harmed by the conduct alleged to have
injured the class. Newman v. RCN Telecom Servs., Inc., 238
F.R.D. 57, 64
(S.D.N.Y.2006).
As discussed, all Plaintiffs put forth the same claims

based on the same misstatements and omissions in the same
documents.
See supra III.b); see also Pls.' Mot. at 19.
All
Plaintiffs' injuries stem from those material misstatements or

omissions. Thus, the claims asserted by all plaintiffs are
typical of one another.
The division of subclasses cures any
concern, valid or not, that a retail investor's claim is

contextually not "typical" of a highly experienced repeat-player
institutional investor's claim.
Defendants argue that Plaintiffs have offered only

"assertions" of typicality "without pointing to any evidence"
Defs.' Opp at 66-8.
The typicality analysis asks whether "the
claims and defenses of the representative parties are typical of

the claims or defenses of the class." Fed. R. Civ. P. 23(a)
(3).
Plaintiffs' papers adequately provide evidence of typicality by
21
pointing to the identical claims of all Plaintiffs in both

proposed subclasses. Pls.' Mot. at 19. This is all the Rule
requires. See NYSE Specialists, 260 F.R.D. at 72
("As long as
plaintiffs assert, as they do here, that defendants committed

the same wrongful acts in the same manner, against all members
of the class, they establish [the) necessary typicality."
(citing In re Towers Fin. Corp., Noteholders Litig., 177 F.R.D.
167, 170 (S.D.N.Y. 1997)
(internal quotation marks and citation
omitted); Robidoux v. Celani, 987 F.2d 931, 936-37 (2d Cir.1993)

("When it is alleged that the same unlawful conduct was directed
at or affected both the named plaintiff and the class sought to
be represented, the typicality requirement is usually met
irrespective of minor variations in the fact patterns underlying
individual claims.")) .
Defendants' arguments about lack of
class standing are unavailing for the same reason: plaintiffs

here all allege they suffered the same injury as a result of the
same conduct, and that conduct implicates the same set of
concerns as the allegedly illegal conduct that caused injury-the
misleading FWP and Amended Registration Statement. See NECA-IBEW
Health & Welfare Fund v. Goldman Sachs & Co., 693 F.3d 145, 162
(2d Cir. 2012).
Defendants also argue that
~[s]ome
plaintiffs, including
all of the Lead Plaintiffs, are subject to a knowledge defense
22
based on individual communications that renders their claims

atypical of other class members." Defs.' Opp. at 65 (citations
and internal quotation marks omitted).
For each plaintiff
Defendants provide evidence to prove actual knowledge,

Plaintiffs point to other evidence to rebut the claims.
Reply at 66-69.
Pl's
Defendants, of course, rebut much of that
evidence and argument in their Sur-Reply. Defs.' Sur-Reply 45

46. This is the song that never ends. What is clear is that
Defendants intend to vigorously pursue an actual knowledge
defense as to every Plaintiff possible (as is their right), not
that the proposed Plaintiffs are any more atypical in relation
to the class than any other.
It is therefore the particular
circumstances, not the fact, of the actual knowledge defenses

that suggests any atypicality, an obvious truism with any
subjective defense such as actual knowledge. Typicality is a
question of the relation of each claim to the others. To find
that the individualized circumstances of an actual knowledge
defense preclude typicality here would allow Defendants to
unhinge the class certification analysis at this point not
because Plaintiffs' claims are dissimilar when compared, but
simply because the defense may apply. Because Defendants intend
to argue actual knowledge widely, the fact of actual knowledge
defenses and the individualized inquiries required to adjudicate
them, whether against the claims of the proposed representatives
23
or other potential class members, more appropriately goes to

predominance rather than typicality. See infra IV.a).
Further, as described below, subclasses and administrative
procedures will effectively manage the minor variations that may
be applicable to the proposed representatives. See id. At the
typicality stage, as set forth above, Plaintiffs have satisfied
Rule 23's requirement. They need not demonstrate they will
succeed on the merits (by disproving Defendants' affirmative
defenses(s) or otherwise).
d. Adequacy
Rule 23(a) (4)
requires that "the representative parties
will fairly and adequately protect the interests of the class."

Fed.R.Civ.P. 23(a) (4).
~Adequacy
entails inquiry as to whether:
1) plaintiff's interests are antagonistic to the interest of

other members of the class and 2) plaintiff's attorneys are
qualified, experienced and able to conduct the litigation." In
re Flag Telecom, 574 F.3d at 35 (citing Ba
F.3d 52, 60 (2d Cir.2000))
v. Donaldson
222
(internal quotation marks omitted).
The first prong of this analysis "serves to uncover conflicts of

interest between named parties and the class they seek to
represent" and ensure that the proposed class representative
possesses "the same interest and suffer[ed] the same injury as
24
the class members." Amchem Prods., Inc. v. Windsor, 521 U.S.

591, 625-26, 117 S. Ct. 2231, 138 L.Ed.2d 689 (1997). To defeat
certification, a conflict between named parties and the class
they seek to represent must be fundamental. In re Visa
Check/MasterMoney Antitrust Litig., 280 F.3d 124, 145 (2d Cir.
2001, abrogated in part on other grounds by In re IPO I, 471
F.3d 24).
North Carolina DST, Arkansas Teacher, and Fresno would

represent the institutional investor class, while the Galvans,
Eric Rand, the Meltons, and Sharon Morley would represent the
retail investors. "As discussed above, all members of the
proposed class allege claims arising from the same wrongful
conduct that are based on the same legal theories as Plaintiff's
claims" and therefore "none of Plaintiff's interests are
antagonistic to those of the proposed class." Billho
281
F.R.D. at 157. Any conflict that may exist is not fundamental.
Defendants submit that Plaintiffs' interests are

antagonistic because some purchased shares before May 18 media
reports about Facebook's revised revenue projections, and some
after.
Defs.' Opp at 66-67.
Much of the differences are
alleviated by separating the institutional investors and the

retail investors.
Regardless, these arguments go to
25
contradictions regarding loss causation and knowledge. Knowledge

is an affirmative defense and as this Court has already stated,
"loss causation is not an element of a claim under either
Section 11 or 12." MTD Opinion at 522-23 (collecting citations).
Though this does not make knowledge and loss causation
irrelevant to the entire class certification inquiry, see infra
IV.a), it does mean that the purported conflict is speculative
as to adequacy at this stage and thus not grounds to defeat
rs Health
v. DLJ
Capital, Inc., No. 08 CIV. 5653 PAC, 2011 WL 3874821, at *4

(S.D.N.Y. Aug. 16, 2011) amended in part, No. 08 CIV. 5653 PAC,
2014 WL 1013835 (S.D.N.Y. Mar. 17, 2014)
(finding speculative
conflict did not defeat typicality, and thus, class

certification). In the event an actual conflict arises, whether
at the damages phase of this case or otherwise, the parties are
free to alert the Court and the issue will be resolved at that
time.
With regard to the second prong of the adequacy analysis,

Counsel is highly qualified and has prosecuted this action
vigorously, their efforts resulting in surviving a motion to
dismiss against some of the finest firms in the nation.
Graziano Deel. 1, Exs. 43-44
(firm resumes); MTD Opinion.
26
See
Counsel are more than sufficiently qualified and experienced to

conduct this litigation. 8
Defendants argue that Plaintiffs have not shown sufficient

knowledge of involvement in the case to meet the requirements of
adequacy, and that certain proposed representatives are
insufficiently aware of the case. Defs.' Opp. at 68. "[C]lass
representative status may properly 9e denied where the class
representatives have so little knowledge of and involvement in
the class action that they would be unable or unwilling to
protect the interests of the class against the possibly
competing interests of the attorneys."
Baffa v. Donaldson, 222
F.3d at 61. Defendants cite an excised portion of this quote to

justify individualized attacks on myopic aspects of proposed
representatives' understandings of this case. Defs.' Opp at 68
(pointing to Melton's knowledge before she joined the case in
December 2014, Mr. Galvan's understanding of the knowledge
issue, Mr. Melton's unawareness of a document search).
s Defendants have also submitted that counsel is conflicted in
representing Plaintiffs of both subclasses, whose interests'

conflict due to the timing of their allegedly corrective actual
knowledge. Pl's Opp. at 63-4. Counsel is only conflicted if the
subclasses truly conflict; in other words, this is the same
speculative argument that the two proposed subclasses conflict
because their loss-causation arguments, which are not a part of
their claim, are necessarily opposed.
27
Defendants leave out the immediately preceding sentences in

Baffa: "The Supreme Court in Surowitz v. Hilton Hotel
383 U.S. 363 . . . expressly disapproved of attacks on the
adequacy of a class representative based on the representative's
ignorance." Baffa, 222 F.3d at 61.
Even if Defendants' attacks were proper, "[c]ourts rarely

deny class certification on the basis of the inadequacy of class
representatives, doing so only in flagrant cases, where the
putative class representatives display an alarming unfamiliarity
with the suit, display an unwillingness to learn about the facts
underlying their claims, or are so lacking in credibility that
they are likely to harm their case."
In re Pfizer Inc. Sec.
Litig., 282 F.R.D. 38, 51 (S.D.N.Y. 2012).

are not present here.
Such circumstances
Plaintiffs pleaded specific reasons and
ways in which lead plaintiffs would remain involved in this

litigation.
See Pls.' Mot. at 20-21. Resolving any doubt,
depositions taken in mid-2015 and submitted in Reply demonstrate

the adequacy of Plaintiffs' involvement in the case.
See
Graziano Deel. 2, Ex. 92-7. Plaintiffs need not demonstrate "a

deep understanding of this litigation" to meet the adequacy
requirement. See In re Sadia, 269 F.R.D. at 310. The awareness
and willingness the proposed representatives have demonstrated
are more than sufficient. See id.
28
Defendants also argue that Rand, the Meltons, and Morley

were not named in the Complaint, and therefore "have not alleged
any claims" and did not attach PSLRA certifications to the
Complaint. Defs.' Opp. at 66. Defendants do not argue any of
these individuals are not part of the class or subclasses
proposed. Rule 23 gives the Court the power to designate class
representatives who are not lead plaintiffs, and Defendants do
not protest that to do so would cause dislocation or delay.
See
In re Oxford Health Plans, Inc., 191 F.R.D. 369, 380-81

(S.D.N.Y. 2000)
(finding "[t)he Court believes on reflection
that it probably has the power to designate a Class

Representative under Rule 23 who is not a Lead Plaintiff, simply
because there is nothing in the statute which prevents it.").
Accordingly, the concern does not defeat a finding of adequacy.
IV.The Proposed Subclasses Satisfy Rule 23(b) (3)
a. Predominance
"Rule 23(b) (3)
requires a proposed class representative to
establish that common questions of law or fact predominate over

any questions affecting only individual members, and that a
class action is superior to other available means of
adjudication." Billhofer, 281 F.R.D. at 158; see also Fed. R.
29
Civ. P. 23{b) (3). The "predominance inquiry tests whether

proposed classes are sufficiently cohesive to warrant
adjudication by representation." Amchem Prods., 521 U.S. at 623,
117 S. Ct. 2231. However, "[i)t is a more demanding criterion
than the commonality inquiry under Rule 23(a) ." Billhofer, 281
F.R.D. at 158 (citing Amchem Prods., 521 U.S. at 623-24). "The
matters pertinent to these findings include:
(A) the class members' interests in individually

controlling the prosecution or defense of separate actions;
(B) the extent and nature of any litigation concerning the
controversy already begun by or against class members;
(C) the desirability or undesirability of concentrating the
litigation of the claims in the particular forum; and
(D) the likely difficulties in managing a class action.
Fed. R. Civ. P. 23(b)(3)(A)-{D).
"Class-wide issues predominate if resolution of some of the

legal or factual questions that qualify each class member's case
as a genuine controversy can be achieved through generalized
proof, and if these particular issues are more substantial than
the issues subject only to individualized proof." Moore v.
PaineWebber,
Inc., 306 F.3d 1247, 1252 (2d Cir.2002)
{citation
omitted). Rule 23 (b) (3) "does not require a plaintiff seeking

class certification to prove that each element of her claim is
susceptible to classwide proof. What the rule does require is
that common questions predominate over any questions affecting
only individual class members." Amgen, 133 S. Ct. at 1196.
30
With these principles in mind, before proceeding to analyze

the individualized questions in this matter, it must again be
noted that this case is of a staggering size, involving a very
great number of potential claimants.
See supra
III.a). The
presence of common questions and answers is therefore an

extremely heavy counterweight to any individualized questions.
Defendants argue strenuously that predominance is defeated

because individualized inquiries will be required to determine
whether each investor knew the truth of the alleged
misstatements or omissions at the time of their purchases.
Defs.' Opp. at 11-54. It is undeniable that Defendants have
shown that a large number of plaintiffs and potential class
members had varying degrees of knowledge about mobile's negative
impact on Facebook's revenue, Facebook's revised projections
given that impact, the Syndicate Analyst's Revised Projections
given Facebook's report of that impact, or some combination
thereof. See supra n. 6-7. Of course, Defendants are correct
that for each individual with any degree of knowledge-whether or
not that knowledge is found on the merits to preclude that
particular plaintiff's claim-is a subjective inquiry for each
and every investor. At the same time, it has been noted in this
District that "individual issues will likely arise in this case
31
as in all class action cases, and to allow various secondary

issues of plaintiffs' claim[s) to preclude certification of a
class would render the rule an impotent tool for private
enforcement of the securities laws." Pub. Emps.' Ret. Sys. of
Mississippi v. Merrill Lynch & Co., 277 F.R.D. 97, 111 (S.D.N.Y.
2011)
(citations and internal quotation marks omitted)
("Pub.
Emps.'"). Moreover, "[a]lthough a defense may arise and may

affect different class members differently, this does not compel
a finding that individual issues predominate over common ones.
As long as a sufficient constellation of common issues binds
class members together, variations in the sources and
application of a defense will not automatically foreclose class
certification under Rule 23(b) (3) ."Brown v. Kelly,
467, 483 (2d Cir. 2010)
609 F.3d
(citations and internal quotation marks
omitted) .
Given the extraordinary size of this case, it is a

perplexing problem that the sheer number of potential plaintiffs
of all stripes and colors with the same claims against the same
defendants is what threatens their ability to proceed as a
class. Though the case is not binding on this Court, the
approach of In re DJ Orthopedics, Inc. is instructive in
resolving the issue. 2003 U.S. Dist. LEXIS 21534
16, 2003)
(S.D. Cal. Nov.
("DJ Orthopedics"). DJ Orthopedics is startlingly
32
comparable to this one factually: the defendant company had been

preparing to go public when they learned of declining sales for
the current quarter, the equivalent of Facebook's realization of
mobile's impact on ad revenue. See id. at *4. The day before the
IPO, underwriter sales teams contacted a limited number of
investors to notify them of the new lowered projections for the
quarter, the equivalent of the Herman Calls. See id. The IPO
went ahead, and investors subsequently brought suit against the
company claiming the Registration Statement and Prospectus
issued in connection with the IPO-which had not been updated
after the realization of declining sales-contained material
misstatements and omissions in violation of sections 11, 12, and
15 of the Securities Exchange Act of 1934. Id. at *4-5.
Plaintiffs sought certification of two subclasses: a "knowledge
class," composed of the investors the underwriters had
contacted, and a "no-knowledge class" composed of the investors
the underwriters did not contact. Id. at *8. Just as in this
case, the DJ Orthopedics defendants argued that individualized
determinations of knowledge would predominate. See Id. at *25.
The Honorable Judith N. Keep of the Southern District of

California agreed the knowledge issues would be significant for
the investors in DJ Orthopedics that were not contacted by
underwriters, but nonetheless certified the subclass on four
33
principles applicable here: first, the division of subclasses

"reduc[ed] the need for individualized determinations on the
issue of knowledge." Id. at *26-7. Second, plaintiffs had
presented multiple common questions with common answers
applicable to every class member, whereas "defendants
indicate[d] only one question that is individualized"-knowledge.
Id. at *27. Third, "the proof regarding the individualized issue
would rely as much on information common to all subclass members
(e.g. how widespread was the public dissemination of the
information) as it would on individual information (e.g. to what
sources of information was each subclass member exposed)." Id.
Fourth, "the trial court has broad discretion in determining
whether a class should be certified." Id.
(citations omitted);
see also Hamilton v. Accu-tek, 935 F. Supp. 1307, 1331-32

(E.D.N.Y. 1996)
("It is universally recognized that . . . a
district court is afforded broad discretion in determining

whether an action should be certified under Rule 23." (citing
City of New York v. Int'l Pipe & Ceramics Corp., 410 F.2d 295,
298
(2d Cir.1969); In re Joint E. & S. Dist. Asbestos Litig.,
129 B.R. 710, 816 (E.D.N.Y. 1991} vacated, 982 F.2d 721
1992) opinion modified on reh'g,
(2d Cir.
993 F.2d 7 (2d Cir. 1993); In
line Cases, 107 F.R.D. 719, 735
~~~~~~~~~~~~
(W.D.Mo.1985)
(citing
cases and treatises); 7A C. Wright, A. Miller, & M. Kane,

Federal Practice and Procedure 1759, at 111 (2d ed. 1986))).
34
Defendants attempt to distinguish DJ Orthopedics on the

grounds that the "knowledge class" in that case was subject to a
uniform disclosure, and no uniform disclosure is present here.
Defs.' Opp. at 37-8. However, the case's reasoning certified the
class despite the individualized knowledge inquiries applicable
to the "no-knowledge" subclass-i.e., the class not subject to
any formal disclosure, not the "knowledge" subclass subject to
uniform disclosure. 2003 U.S. Dist. LEXIS 21534, at *24-5
(finding under the heading "Putative-Knowledge Subclass" that
"no individualized determinations [we] re necessary," while
granting under the heading "No-Knowledge Subclass" that
individualized questions, "likely to be a significant issue"
nonetheless did not predominate) .
DJ Orthopedics' logic and factual similarity is persuasive

in this matter. With respect to the institutional investor
class, Defendants' evidence is so widespread it presents yet
another common question and answer: whether the information was
so diffuse that all institutional investors can be charged with
actual knowledge of the truth of the material misstatements and
omissions alleged.9 Indeed, Defendants' have retained an expert
9 Defendants attempt to rebut this additional common issue by
35
to testify to widespread diffusion of information.10 The division

of subclasses therefore reduces the need for individualized
determinations on the issue of knowledge, and in fact adds more
weight to the predominance of common questions and answers,
practically negating the individualized questions raised.
Multiple common questions and answers to the institutional
investor subclass therefore outweigh any individualized
questions. Defendants attempt to place a thumb on the scale
against predominance by arguing at times in terms of shares
(which were often purchased in significant numbers by
institutional investors).
See~,
Defs.' Sur-Reply at 6,
protesting that they do not intend to put forth a constructive

knowledge defense. See Defs.' Sur-Reply at 3. Regardless of the
merit of such an argument, whether an inference of actual
knowledge stemming from widespread diffusion of the information
in question can be made is similar to but distinct from a
constructive knowledge defense.
10 Plaintiffs have moved to strike the report of Dr. Aninyda
Ghose. Pls.' Mot. to Strike, ECF No. 292. The Court has
considered the Ghose Report in determining whether uinformation
discussing the negative impact of mobile usage on Facebook's
revenue was broadly diffused." Defs.' Opp. to Pls.' Mot. to
Strike the Report of Aninyda Ghose at 5. In light of the
multitudinous examples of information presented by Defendants
showing some aspect of the Herman Calls leaked (to institutions,
investors, and media), this conclusion appears warranted.
Nevertheless, for all the reasons set forth herein, the common
questions, facts, and answers presented predominate over the
individualized questions of knowledge that will be relevant in
resolving Defendants' affirmative defense. The motion to strike
is therefore denied without prejudice, and the issue of whether
the Ghose Report satisfies Daubert is moot. In the event
Defendants offer Ghose or the Ghose Report for other purposes,
Plaintiffs are free to renew their Daubert objection.
36
Defs.' Ex. at 11.
However, how many individualized knowledge
inquiries are present and whether they predominate is a matter

of investors, not shares. Defendants need not ask a single
investor who purchased 40,000 shares whether she knew about
mobile's negative impact on Facebook's revenue (or anything
else)
40,000 times. Once is enough.11
Likewise, whether any investor, institutional or retail,

gained relevant actual knowledge from media reports precluding
their claim presents another common question as to whether the
relevant media reports conveyed all of the truth Plaintiffs
allege was misstated or omitted. See Defs.'s Opp at. 26-28; 4649. For every individual question of whether each investor had
actual knowledge stemming from these reports, there are scores
of common facts and questions about the content of each and
every media report.
As to the retail subclass, Defendants have presented much

less evidence of actual knowledge, and each allegation is worth
addressing in turn. First, Defendants allege that retail
A maxim as applicable to fact discovery as

hearts. See Willie Nelson, Steven Tyler, One
The Essential Willie Nelson (Columbia/Legacy
Once is Enough, on Lyle Lovett and His Large
Records 1989); Elvis Presley, Once is Enough,
(RCA Victor 1964).
11
37
to life and broken

Time Too Many, on
2003); Lyle Lovett,
Band (MCA/Curb
on Kissin' Cousins
investors who purchased stock in the IPO through accounts

managed by investment advisors can be imputed with the knowledge
of institutional advisors. Defs.' Opp at 50. This argument loops
back to at least one common question of whether institutional
investors can all be charged with actual knowledge. See supra
text accompanying n.9-10. Regardless, Plaintiffs have clarified
that these individuals who purchased their shares through
institutional investors are considered a part of the
institutional investor class both by the industry and for
purposes of this class action if the investor made the purchase
decision.
Pls.' Reply at 33, Tr. 77:4-7 ("The question is what
is the status of the person making the investment decision. If

that person is an investment advisor, they are under FINRA, a
quote-unquote institution. And they are treated that way.").
Furthermore, 19 institutions will be excluded from the class
(see Exclusions, supra I), significantly reducing the weight
of the issue with regard to the institutional investor subclass.
Next, Defendants allege Ian DelBalso learned at least some

of the relevant facts from his father, an employee at Jennison,
one of the institutional investors. Defs.' Opp. at 52. This
incredibly unique set of facts applies solely to Mr. DelBalso,
hardly presenting an issue of predominance or even plausible
speculation that the same circumstances of knowledge might apply
38
on any widespread basis. Regardless, he is excluded from the

retail class as set forth above. Pls.' Reply at 39.
Defendants allege Larry Kim had actual knowledge evidenced

by his blog posts voicing concerns about Facebook's ability to
monetize its mobile platform. Defs.' Opp. at 52. Mr. Kim's
insightful analysis of readily apparent public information
(specifically, that Facebook did not offer mobile ads, and that
mobile use was growing fast)
alone hardly suffices to meet the
high bar of the actual knowledge of the specific misstatements

and omissions alleged in this case. Similarly, Defendants allege
Connie Prater, a consumer news writer, had actual knowledge due
to having referred readers to articles about Facebook's
decelerating revenue growth and revised projections, and
testifying that she invested "knowing the risks." Id. at 52-3.
As with Mr. Kim, this evidence does not rise to the level of the
actual knowledge standard.
Regardless, even assuming that Defendants had sufficiently

proven each of these individuals had actual knowledge sufficient
to defeat their particular claims, and even assuming none were
excluded from the retail class as the significant portion of
individuals who invested through institutional investors will
be, this is a relatively miniscule portion of the total proposed
39
class of retail investors when compared to the whole. Granting

all of the above arguendo, the single individualized issue of
knowledge as to a small handful of retail investors is not
enough to defeat predominance for the retail subclass. Both
qualitatively and quantitatively, the many common questions,
answers, and facts articulated above predominate over the
individualized issue of knowledge.
To defeat predominance, Defendants also rely heavily on In

re IPO I where the Second Circuit found predominance of
individual questions of knowledge defeated common questions in a
lO(b) action. 471 F.3d at 27. The Second Circuit subsequently
clarified In re IPO by distinguishing the different
circumstances of Section 11 and 12 claims. In re IPO II, 483
F.3d 70, 73n.l
(2d Cir. 2007); see also Pub. Emps.', 277 F.R.D.
at 117 ("The Second Circuit's clarification is not trivial in

this context, as courts generally focus on the liability issue
in deciding whether the predominance requirement is met, and if
the liability issue is common to the class, common questions are
held to predominate over individual questions." (citing DuraBilt Corp. v. Chase Manhattan Corp., 89 F.R.D. 87, 93
(S.D.N.Y.1981)
(internal quotation marks omitted)). Moreover,
courts decline to follow IPO in instances where, as here, the

proposed class does not include investors who are alleged to
40
have participated in the fraud in question. See In re Moody's

Corp. Sec. Litig., 274 F.R.D. 480, 491
(S.D.N.Y. 2011) (declining
to follow IPO in lO(b) (5) action where Defendant could not

"point to anything that rises to the same level of actual
knowledge or, even a reasonable inference of such knowledge,
that the market had in IPO"); Pub. Emps.', 277 F.R.D. at 117
(declining to follow In re IPO given "[t]here is no allegation
in this case that any class member actually participated in the
conduct described in the Amended Complaint."); see also In re
Lehman Bros. Sec. & ERISA Litig., No. 08 CIV. 5523 LAK, 2013 WL
440622, at *4
(S.D.N.Y. Jan. 23, 2013).
Defendants argue that the same knowledge issues undermine

certification because "Plaintiffs have not carried their burden
to prove that causation and damages are class-wide issues . .
and that materiality will be a common question." Defs.' Opp. at

54.
Regarding materiality, the law is clear: "Because

materiality is judged according to an objective standard, the
materiality of (Defendant's] alleged misrepresentations and
omissions is a question common to all members of the class .
. As to materiality, therefore, the class is entirely cohesive:
It will prevail or fall in unison. In no event will the
41
individual circumstances of particular class members bear on the

inquiry." Amgen, 133 S. Ct. at 1191. This Court having found
materiality on a class-wide basis sufficient to uphold
Plaintiffs' claims on the motion to dismiss defeats Defendants'
argument. MTD Opinion at 519 522. Nevertheless, to whatever
extent Defendants are concerned that "huge swaths of the class
had 'additional information'" creating "uncommon materiality
issues," it is practically resolved by certification of the
subclasses.
With respect to loss causation, this is not an element of

any of Plaintiffs claims. See MTD Opinion at 522-3. The causes
of the Facebook stock declines are factual questions suitable
for resolution on a class-wide basis. Defendants have yet to
provide sufficient evidence at this stage to establish negative
causation. Whether subsequent resolution will be in favor of
Defendants such that investors who made their purchases on
certain dates will be precluded from recovery does not
constitute an individualized question, nor does it tip the
scales of predominance in Defendants'
favor.
Tangentially to their loss causation argument, Defendants

next submit that the damages inquiries here are individualized,
resulting
i~
both predominant uncommon questions, and a mismatch
42
between damages and Plaintiffs' theory of liability barred by

Comcast v. Behrend. Defs.' Opp. at 54-60; Defs.' Sur-Reply at
34-40; see generally, 133 S. Ct. 1426, 185 L. Ed. 2d 515 (2013).
Defendants allege a mismatch due to incongruity between the
allegations in the Complaint
(specifically, that the May 22
Facebook stock price decline was a result of reports of the

underwriters' revisions), and Plaintiffs' post-motion to dismiss
position (that the material misstatement or omission at issue is
that Facebook had determined mobile was reducing revenues and
cut its own revenue projections as a result). Defs.' Opp. at 556 (citing Compl.
184; Pls.' Mot. at 7, 23, 28}.
Comcast was
an antitrust case where the regression model used to calculate

damages did not measure damages attributable to the surviving
theory of liability. 133 S. Ct. at 1433 ("There is no question
that the model failed to measure damages resulting from the
particular antitrust injury on which petitioners' liability in
this action is premised."). The case requires that "at the
class-certification stage (as at trial}, any model supporting a
plaintiff's damages case must be consistent with its liability
case." Id.
First, "Comcast does not mandate that certification

pursuant to Rule 23(b) (3)
requires a finding that damages are
capable of measurement on a classwide basis."
43
Roach v. T.L.
Cannon Corp., 778 F.3d 401, 402 (2d Cir. 2015). The Second
Circuit "did not read Comcast as overruling" the law of this
Circuit holding "the fact that damages may have to be
ascertained on an individual basis is not sufficient to defeat
class certification" under Rule 23(b) (3) ." Id. at 405. Second,
Comcast does not bar certification here, where Section 11(e) of
the Securities Act provides a statutory formula for damages.
N.J. Carpenters Health Fund v. Residential Capital, LLC, No. 08
CV 5093 HB, 2013 WL 6839093, at *5 (S.D.N.Y. Dec. 27, 2013)
(rejecting Comcast's application to claims under Sections 11,
12 (a) (2), and 15 of the Securities Act where Section 11 (e)
provided a damages formula} . Defendants attempt to refute this
conclusion by characterizing it as an argument that "Comcast
applies only to anti-trust actions," an easier point to
disprove. Defs.' Sur-Reply at 45. Quite to the contrary, Comcast
applies beyond anti trust, but it does not bar certification for
the claims Plaintiffs have presented. New Jersey Carpenters,
2013 WL 6839093, at *5 ("While [Comcast's] analysis is not
limited to the anti-trust context, see
F.R.D. 489, 497
v. Hearst Co
., 293
(S.D.N.Y. 2013}, it is inapposite here, where
damages reflect liability by statutory formula.u}. Because the

statutory formula applies, the individual damages questions are
sufficiently reduced that predominance of the common questions,
answers, and facts remains. Likewise, the offset of the Nasdaq
44
settlement presents another weighty common question (and perhaps

several) that outweighs the individualized matter of how it will
apply to individual investors, matters that can be
administratively managed as set forth below.
Citing Morrison v. National Australia Bank, 561 U.S. 247

(2010), Defendants posit that the class cannot be certified
because "U.S. securities laws do not apply extraterritorially,
. . but only where title to the security transfers within the
u.s.n Defs. Opp. at 74. Defendants submit their proof of
international investors stems from Plaintiffs' evidence "showing
that over 53 million shares (out of the 421 million IPO size)
were allocated to at least 295 investors identified in myriad
foreign locations.n Id. Coupling this fact with the purchase of
many of the shares implicated in this action on a secondary
market, Defendants argue that Plaintlffs are unable to trace a
vast number of shares to domestic transactions, and therefore
fail Morisson. Defs,' Opp. at 74-5.
First, Defendants' argument admittedly goes to 295

investors in a potential class of many thousands.
See id. at
74. For this reason alone, it does not defeat predominance.

Second, the "identified in myriad foreign locations" language is
notably imprecise in light of a doctrine that asks exactly where
45
irrevocab
liability was incurred. That any buyers were
"identified" outside the United States is not determinative of

where their transactions occurred. "[I)n order to adequately
allege the existence of a domestic transaction, it is sufficient
for a plaintiff to allege facts leading to the plausible
inference that the parties incurred irrevocable liability within
the United States." Absolute Activist Value Master Fund Ltd. v.
Ficeto,
677 F.3d 60,
68 {2d Cir. 2012). Aftermarket
notwithstanding, that Plaintiffs have alleged that any foreign

allocants "participated in a strictly U.S.
IPO of a U.S. company
in order to receive shares registered in the United States with

the SEC that would trade exclusively on an American exchange" is
sufficient to establish that plausibility. Pls.' Reply at 83
(emphasis omitted). Defendants' other arguments on this issue
are not persuasive, and to the extent traceability issues exist
to overturn the plausible inference, Defendants are free to
present these issues at a later stage.
Finally, Defendant's put forth a Sur-Reply prayer to defer

ruling on (or, more precisely, defer granting) class
certification pending the Supreme Court's resolution of Tyson
Foods,
Inc. v. Bouaphakeo. See

Defs.' Sur Reply at 43; see
also
- -
2015 WL 1285369 (U.S.). Decision in that case may touch upon the
23(b) (3) predominance inquiry, but it may also rest on solely
46
independent grounds relating to a 1974 wage-and-hour ruling.12

The Court declines to wait and see for a possibly relevant
ruling that may never arrive.
For the reasons set forth above, the individualized

inquiries Defendants present are not more substantial than the
many common questions, answers, and facts subject to generalized
proof, and thus the Plaintiffs have met their burden of 12(b) (3)
predominance. See Moore, 306 F.3d at 1252. Certification does
not bar Defendants from exercising their due process right to
raise individualized knowledge defenses, as they have repeatedly
suggested.
See~
Tr. 31:16-18, 35:9-13. It is
administratively feasible (and indeed far more feasible than the

prospect of thousands of full-blown individualized trials for
each and every claimant necessarily involving the same facts and
questions) to manage Defendants' actual knowledge questions as
reliance was managed in In re Vivendi. See generally 284 F.R.D.
144 (2012)
("Vivendi II"). Defendants may submit their class
wide actual knowledge defense arguments on a motion for summary

judgment and/or at trial, and individualized actual knowledge
In fact, oral argument seems to suggest the opinion in Tyson

Foods will "say[] nothing about Rule 23." See Lyle Denniston,
Argument Analysis: Big test of class action - maybe not so big,
Scotusblog.com (Nov. 10, 2015, 1:48pm),
http://www.scotusblog.com/2015/11/argument-analysis-big test-ofclass-action-maybe-not-so-big/.
12
47
can be adequately managed post-trial through an individualized

phase involving separate jury trials if necessary. This is the
most efficient way to manage both the predominant common
questions and the individualized questions in this case without
overwhelming the common adjudication with individualized issues
and vice versa. The specific procedures for management through
adequate notice and the claim process can be resolved when those
matters are properly before the Court.
b. Superiority
"The superiority requirement asks courts to balance, in

terms of fairness and efficiency, the advantages of a class
action against those of alternative available methods of
adjudication." Vivendi I, 242 F.R.D. at 91; Fed. R. Civ. P.
23 (b) (3) . The interests of the class members in controlling
separate actions, the extent and nature of any litigation
already commenced, the desirability of concentrating the
litigation in a particular forum, and the difficulties in
management are all to be considered in the superiority analysis.
See Fed. R. Civ. P. 23 (b) (3).
Superiority of managing this litigation as a class action

is readily apparent for both subclasses, as it is in most
48
securities suits. See In re Blech Sec. Litig., 187 F.R.D. 97,

107 (S.D.N.Y. 1999). As has been reiterated in this District:
Most violations of the federal securities laws ... inflict
economic injury on large numbers of geographically
dispersed persons such that the cost of pursuing individual
litigation to seek recovery is often not feasible. Multiple
lawsuits would be costly and inefficient, and the exclusion
of class members who cannot afford separate representation
would neither be 'fair' nor an adjudication of their
claims. Moreover, although a large number of individuals
may have been injured, no one person may have been damaged
to a degree which would induce him to institute litigation
solely on his own behalf.
Pub.
s.'
277 F.R.D. at 120 (quoting In re Merrill
Research Sec. Litig., 249 F.R.D. 124, 132 (S.D.N.Y.2008)

(quoting
All of the Rule 23 (bl (3)
factors weigh in favor of
proceeding as a class: there is no weighty interest for each

class member to proceed individually here, and the interests of
any class members in proceeding as separate actions can easily
be met through the opt-out process. Meanwhi
, a class action
achieves the benefit of allowing a class of geographically and

economically diverse plaintiffs to adjudicate their claims
expeditiously and efficiently. For the institutional investor
subclass, this allows institutions for whom it may not be a
sound tradeoff of business resources to litigate their claims
individually to nonetheless obtain redress. For the retail
investor subclass, recovery may be obtained for claims
49
financially significant to an individual or family, but too

minor to justify hiring independent counsel and proceeding
individually. 1 3 Proceeding as a class also gives these smaller
players leverage in a bargaining dynamic where most of the power
lies in the hands of a large corporation.
277
F.R.D. at 120 (citing Board of Tr. of AFTRA Ret. Fund v.

JPMorgan Chase Bank, N.A., 269 F.R.D. 340, 355 (S.D.N.Y. 2010)).
The desirability of concentrating this litigation in a

particular forum and reduced difficulty of case management by
certification of a class is evidenced by the fact that
consolidation has helped this case proceed smoothly, and for the
administrative reasons outlined above that make adjudication of
a single class action,
followed by individualized inquiries if
necessary, the superior method of process. See
IV.a).
"[C)oncentrating litigation in a single forum plainly has a

number of benefits, including eliminating the risk of
inconsistent adjudications and promoting the fair and efficient
use of the judicial system, and the Southern District of New
13 Defendants argue that such small claims are not an issue here
because large claims can be shown. Defs.' Opp. at 77. This case
does implicate relatively small claims such as the Meltons'
($13,000) and Sharon Morley's ($14,000). Pls.' Reply at 88.
Moreoever, the "existence of large individual claims that are
sufficient for individual suits is no bar to a class when the
advantages of unitary adjudication exist to determine the
defendant's liability." Pub. Emps.' / 277 F.R.D. at 120.
50
York is well known to have expertise in securities law." Pub.
WL 5178546, at *12 (S.D.N.Y. Dec. 23, 2009)

marks omitted)).
(internal quotation
Plaintiffs have met their burden to establish
superiority.
c. Ascertainability
Rule 23 contains an "implied requirement of

ascertainability." Brecher v. Republic of Argentina, No. 144385, 2015 WL 7273415, at *2 (2d Cir. Nov. 18, 2015)
(collecting
citations). "[T]he touchstone of ascertainability is whether the

class is usufficiently definite so that it is administratively
feasible for the court to determine whether a particular
individual is a member." Id.
(citations and internal quotation
marks omitted). "A class is ascertainable when defined by

objective criteria that are administratively feasible and when
identifying its members would not require a mini-hearing on the
merits of each case." Id.
(quoting Charron v. Pinnacle Grp. N.Y.
LLC, 269 F.R.D. 221, 229 (S.D.N.Y.2010)
(citations and internal
quotation marks omitted)). Though objective criteria are

necessary, they are not alone sufficient, and must "establish
the definite boundaries of a readily identifiable class." Id.
51
"The standard for ascertainability is not demanding. It is

designed only to prevent the certification of a class whose
membership is truly indeterminable." Stinson v. City of New
York, 282 F.R.D. 360, 374 (S.D.N.Y. 2012)
(citing Gortat v.
Capala Bros., Inc., No. 07-CV-3629(ILG), 2010 WL 1423018, at *2,

(E.D.N.Y. Apr. 9, 2010)
(internal quotation marks omitted).
This standard in mind, Plaintiffs have proposed ascertainable

subclasses. Given that the subclasses may be ascertained with
reference to investor records, it is administratively feasible
to determine whether an investor is a member of the
institutional investor subclass, the retail investor subclass,
or no subclass at all. See Pls.' Reply at 59. Though
documentation may be required, mini-hearings on the merits of
each investor's inclusion in the subclasses will not be.
With respect to class allocation, whether an IPO allocant

is a member of the retail class or the institutional class is
determined first by reference to Facebook's own Final Allocant
List, which lists institutional investors. Graziano Deel. 1 Ex.
42. Obvious institutions that received shares from both the
institutional and retail allocations appearing on this list
(Morgan Stanley Investment Management, William Blai, Levin
Capital Strategies) remain part of the institutional subclass.
The odd few institutional investors that allegedly received
52
retail allocations remain part of the institutional subclass

because their identity, not the source of their shares,
controls. Whether an aftermarket purchaser is part of the retail
or institutional class is determined by applying the Financ
Industry Regulatory Authority definitions to the individual who

made the investment decision.
See Tr. 25:10-11. These objective
steps lead to definite boundaries, and thus highly ascertainable

subclasses (not to mention result in intuitive determinations of
which investors belong to which subclass).
Defendants protest that Plaintiffs did not provide a

definition for either "institutional investor" or "retail
investor" in their moving papers, and thus two subclasses cannot
be certified.
Defs.' Opp. at 72-4.
It is disingenuous at best
r Defendants to suggest the subclasses are unascertainable,

and thus that the Court cannot feasibly determine when an
individual falls in one class or the other, while Defendants
distinguish between retail and institutional investors on their
own initiative in the same motion. See e.g., Defs.' Opp at 11
("Defendants have compiled unrebutted evidence showing thousands
of class members, including both institutional and individual
investors ... "
(emphasis omitted)); 3 ("An anal
. , an institutional allocant ... ");
53
t a t Jennison .
49 54 ("Retail Investors
Also Had Actual Knowledge of the Alleged Omission and

Misrepresentation").
Defendants also argue the "damaged thereby" language

requires merits determinations and defeats ascertainability.14
Defs.' Opp. at 71-2. Notably, Defendants provide no Second
Circuit authority to support their argument. This language is
standard, and regardless, "(w]hether a potential class member
purchased [Defendant's] shares in the offering and held those
shares until the corrective disclosure can be determined via
objective criteria. Thus, members of the class are
ascertainable." In re Bank of Am. Corp. Sec., Derivative, &
Employee Ret. Income Sec. Act (ERISA) Litig., 281 F.R.D. 134,
140 (S.D.N.Y. 2012)
14 Defendants also re-raise their same knowledge argument, which

the Court finds unpersuasive for all the reasons set forth in
the predominance section. See IV.a).
54
V. Conclusion
For the foregoing reasons and as set forth above, the

motions for class certi
cation, appointment as Class
Representatives, and appointment of Class Counsel are granted.
In light of the confidentiality stipulation and order

entered in this case, the parties are directed to jointly submit
a redacted version of this opinion to be filed publicly.
It is so ordered.
New York, NY
December / / ' 2015
U.S.D.J.
55
Case 1:12-md-02389-RWS Document 71
Filed 02/28/13 Page 1 of 95
UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK
MDL No. 12-2389 (RWS)
IN RE FACEBOOK, INC., IPO SECURITIES

AND DERIVATIVE LITIGATION
CONSOLIDATED CLASS ACTION

COMPLAINT
JURY TRIAL DEMANDED
This document relates to the
Consolidated Securities Action:
No. 12-cv-4081
No. 12-cv-4099
No. 12-cv-4131
No. 12-cv-4150
No. 12-cv-4157
No. 12-cv-4184
No. 12-cv-4194
No. 12-cv-4215
No. 12-cv-4252
No. 12-cv-4291
No. 12-cv-4312
No. 12-cv-4332
No. 12-cv-4360
No. 12-cv-4362
No. 12-cv-4551
No. 12-cv-4648
No. 12-cv-4763
No. 12-cv-4777
No. 12-cv-5511
No. 12-cv-7542
No. 12-cv-7543
No. 12-cv-7544
No. 12-cv-7545
No. 12-cv-7546
No. 12-cv-7547
No. 12-cv-7548
No. 12-cv-7550
No. 12-cv-7551
No. 12-cv-7552
No. 12-cv-7586
No. 12-cv-7587
TABLE OF CONTENTS
Page
I.
INTRODUCTION .............................................................................................................. 2
II.
JURISDICTION AND VENUE ......................................................................................... 9
III.
PARTIES .......................................................................................................................... 10
IV.
V.
A.
Lead Plaintiffs ....................................................................................................... 10
B.
Named Plaintiffs ................................................................................................... 11
C.
Defendants ............................................................................................................ 12
1.
Corporate Defendant ................................................................................. 12
2.
The Individual Defendants ........................................................................ 12
3.
The Underwriter Defendants..................................................................... 15
OVERVIEW ..................................................................................................................... 18
A.
Facebooks Meteoric Rise Creates Unprecedented Market Anticipation

For Its IPO............................................................................................................. 18
B.
Facebook Files For Its IPO, And The Market Reacts Positively To Its Disclosures
Concerning Its Revenue, Growth, And Positioning In The Mobile Market ......... 20
C.
The SEC Questions Facebooks Disclosures ........................................................ 23
D.
As Facebook Prepares For Its Roadshow, The Company Continues To

Emphasize Its Growth Prospects In The Mobile Market To Investors ................. 24
E.
As Facebook Begins Its Roadshow, It Determines That Its Revenues For The
Second Quarter And The Year Have Been Materially Impacted ......................... 30
F.
Facebook Discloses Its Severe Revenue Declines To A Select Group Of Investors,

But Not To The Market......................................................................................... 33
G.
With The Market Unaware Of The Pronounced Deterioration In Facebooks

Revenue, Facebook Increases The Price And Size Of The Offering, And
Allocates An Extremely High Number Of Shares To Small Investors ................ 39
H.
Facebook Conducts Its Historic IPO..................................................................... 43
I.
Facebooks Market Debut Fizzles As Morgan Stanley Is Forced To Desperately

Prop Up The Companys Stock Price To Prevent A Broken Issue ................... 45
J.
Facebook Stock Collapses On Monday And Tuesday As The Truth Emerges .... 48
K.
The Financial Media Acknowledges That The Declines In Facebooks Revenue

Estimates Were Not Conveyed By Facebooks Public Disclosures, And
Significantly Altered The Total Mix Of Information ........................................... 52
THE NEGATIVE CHANGE IN FACEBOOKS REVENUE ESTIMATES

SIGNIFICANTLY ALTERED THE TOTAL MIX OF INFORMATION IN THE
MARKETPLACE ............................................................................................................. 54
VI.
MATERIALLY UNTRUE AND MISLEADING STATEMENTS

AND OMISSIONS ........................................................................................................... 59
VII.
CLASS ACTION ALLEGATIONS ................................................................................. 67
VIII. THE INAPPLICABILITY OF THE STATUTORY SAFE HARBOR AND

BESPEAKS CAUTION DOCTRINE .............................................................................. 69
IX.
CAUSES OF ACTION ..................................................................................................... 70

COUNT I .......................................................................................................................... 70
For Violations Of Section 11 Of The Securities Act (Against Defendants
Zuckerberg, Ebersman, Spillane, The Facebook Board, And The
Underwriter Defendants)
COUNT II ......................................................................................................................... 72
For Violations Of Section 12(a)(2) Of The Securities Act (Against Facebook,
Defendants Zuckerberg, Sandberg, and Ebersman,
and The Underwriter Defendants)
COUNT III ........................................................................................................................ 75
For Violations Of Section 15 Of The Securities Act (Against the Individual
Defendants)
X.
PRAYER FOR RELIEF ................................................................................................... 77
XI.
JURY TRIAL DEMANDED ............................................................................................ 77
ii
1.
Court-appointed Lead Plaintiffs, the North Carolina Department of State
Treasurer on behalf of the North Carolina Retirement Systems, Banyan Capital Master Fund
Ltd., Arkansas Teacher Retirement System, and the Fresno County Employees Retirement
Association (collectively, Lead Plaintiffs), and Named Plaintiffs Jose G. Galvan and Mary Jane
Lule Galvan, bring this action individually and on behalf of all persons and entities who
purchased or otherwise acquired the Class A common stock of Facebook, Inc. (Facebook or the
Company) in or traceable to Facebooks initial public offering (the IPO), which occurred on
or about May 17, 2012, and were damaged thereby (collectively, the Class). Excluded from
the Class are Defendants (as set forth herein), present or former executive officers of Facebook
and their immediate family members (as defined in 17 C.F.R. 229.404, Instructions (1)(a)(iii)
and (1)(b)(ii)).
2.
Lead Plaintiffs allege the following based upon personal knowledge as to
themselves and their own acts and upon information and belief as to all other matters. Lead
Plaintiffs information and belief is based on, inter alia, the independent investigation of Courtappointed Co-Lead Counsel, Bernstein Litowitz Berger & Grossmann LLP and Labaton
Sucharow LLP. This investigation included, but was not limited to, a review and analysis of: (i)
public filings with the Securities and Exchange Commission (SEC) by Facebook; (ii) research
reports by securities and financial analysts; (iii) transcripts of investor conference calls; (iv)
publicly available presentations by Facebook; (v) press releases and media reports; (vi) economic
analyses of securities movement and pricing data; (vii) publicly available filings in the legal
action brought against Morgan Stanley & Co. LLC by the Massachusetts Securities Division (the
Massachusetts Enforcement Action); (viii) consultations with relevant experts; and (ix) other
publicly available material and data identified herein. Co-Lead Counsels investigation into the
factual allegations contained herein is continuing, and many of the relevant facts are known only
by the Defendants named herein, or are exclusively within their custody or control. Lead
Plaintiffs believe that substantial additional evidentiary support will exist for the allegations set
forth herein after a reasonable opportunity for further discovery.
3.
As set forth further below, the claims asserted herein arise solely under the
Securities Act of 1933 (the Securities Act). These Securities Act claims are based solely on
strict liability and negligence, and are not based on any reckless or intentionally fraudulent
conduct by or on behalf of the Defendants i.e., these claims do not allege, arise from, or sound
in, fraud. Lead Plaintiffs specifically disclaim any allegation of fraud, scienter, or recklessness in
these non-fraud Securities Act claims.
I.
INTRODUCTION
4.
This case is about the integrity of the market for initial public offerings.
Facebook, the worlds largest online social network, conducted one of the biggest and most
highly anticipated initial public offerings in history on May 17, 2012. In the offering, Facebook
and its insiders sold more than 421 million shares of common stock to the investing public at $38
per share, reaping more than $16 billion in proceeds the largest initial public offering ever
conducted by a technology company, and the third-largest ever conducted in the United States by
any company.
5.
A key factor influencing the value of Facebooks stock was its ability to generate
large and rapidly growing amounts of revenue through its core advertising business. Thus, the
Registration Statement pursuant to which Facebook conducted its IPO repeatedly represented
that the Company had experienced rapid growth, stating, for example, that its annual revenues
had increased from approximately $150 million to more than $3.7 billion in the four years before
its IPO. In the months and weeks leading up to the IPO, the financial press repeatedly reported
2
that the Companys revenue growth had created extraordinary and astronomical demand for
its IPO, and that Facebook was a must-own stock.
6.
On April 16, 2012, as Facebook was preparing to market the IPO to institutional
investors through its roadshow, the Companys CFO, Defendant David Ebersman, provided
revenue guidance to the analysts from the investment banks that were underwriting the IPO (the
Syndicate Analysts). Ebersman informed the Syndicate Analysts that Facebook was estimating
that it would report revenue of as much as $1.2 billion for the second quarter of 2012 the
quarter in which Facebook was going public and $5 billion for the year. Based on Facebooks
guidance, the Syndicate Analysts generated revenue estimates that mirrored the figures Ebersman
had provided, and provided their estimates to the large clients of their investment banks that were
considering investing in the IPO.
7.
Over the next three weeks, however, Facebooks revenues began to rapidly
deteriorate. Indeed, by no later than May 7, 2012, the day that Facebook began its roadshow in
New York, the Company determined that two developments within its core advertising business
had materially impaired its ability to generate revenue for both the second quarter of 2012 and
the full year.
8.
The first and most damaging change concerned a shift in the way that users
accessed Facebook. In particular, Facebook had determined that its users were increasingly
accessing Facebook through mobile devices, such as mobile phones, instead of through
traditional desktop computers, and that this had materially impaired the Companys ability to
generate revenue. That is because Facebook displayed large amounts of advertising to its
desktop users, but displayed much less advertising to its mobile users. Thus, as Facebooks users
shifted from desktop computers to mobile devices, the Company was generating far less
advertising revenue than it had expected.
9.
At the same time that Facebook determined that its users were increasingly
migrating to mobile devices, Facebook also determined that certain product decisions it had
made such as decisions concerning the type of the advertisements it displayed had
compounded the steep decline in its expected revenue. In particular, the Companys product
decisions had reduced the number of advertisements per page that Facebook displayed to its
users, thereby exacerbating the deterioration in the Companys advertising revenue caused by the
shift to mobile devices.
10.
As a direct result, ten days before the IPO was scheduled to occur, Facebook
drastically slashed the revenue estimates it had provided to the Syndicate Analysts only three
weeks earlier. Specifically, by no later than May 8, 2012, Facebook cut its estimated revenue for
the second quarter of 2012 by as much as $100 million, or more than 8.3%, and for the year by
as much as $175 million, or 3.5%.
11.
Facebooks most senior executives immediately recognized that the pronounced
deterioration in Facebooks revenue was highly material. The same day that Facebook cut its
revenue estimates, Defendant Ebersman and the head investment banker on the IPO, Michael
Grimes of lead underwriter Morgan Stanley, concluded that the decline in Facebooks revenue
was so significant that Facebook had to promptly disclose its lowered revenue estimates.
However, rather than publicly disclose this information, Facebook decided to disclose it only to a
handful of its largest and most significant potential investors. Thus, on May 9, Facebook filed an
amended Registration Statement in which it misleadingly represented that the two factors noted
above might have a negative impact on its revenues. Specifically, in its amended Registration
Statement, Facebook merely stated that, as a result of increasing mobile usage and the
Companys product decisions, the Companys users were growing more quickly than the number
of ads that company was displaying to them. At no time, however, did the Registration
Statement disclose that the Companys revenues had been negatively impacted by these factors.
To the contrary, the amended Registration Statement stated only that these factors may
negatively affect our revenue and financial results the exact same information the Company
had disclosed prior to determining that they had negatively impacted its revenue and financial
results. Accordingly, the warnings themselves in the amended Registration Statement constituted
false statements.
12.
The actions that Facebooks own senior officers took after the amended
Registration Statement was filed confirm that they understood that the information regarding the
declines in Facebooks revenues was highly material, not conveyed by the amended Registration
Statement, and not otherwise part of the total mix of information in the market. Thus, beginning
on the evening of May 9 only twelve minutes after Facebook filed the amended Registration
Statement Facebooks Treasurer, Cipora Herman, began to conduct nineteen separate telephone
calls with the Syndicate Analysts. Each of these calls had the same purpose: to inform the
Syndicate Analysts of the material facts which the Registration Statement had not disclosed. On
these calls, Herman read from a script prepared by Grimes, and told the Syndicate Analysts that
the two factors discussed above had already materially impaired Facebooks revenue for the
second quarter and year, and that, as a result, Facebook had sharply lowered the revenue
estimates it had given them only three weeks earlier.
13.
As Facebook knew they would, the Syndicate Analysts immediately lowered their
own internal estimates for Facebooks revenue to mirror Facebooks revised guidance, and
communicated these lowered estimates to a small, select group of institutions that were
considering investing in the IPO. The Syndicate Analysts did not issue any public reports with
respect to their lowered estimates of Facebook prior to the completion of the IPO.
14.
The few institutions who received this information immediately recognized that it
was new, material information that reflected a highly negative change in Facebooks financial
condition. As Reuters would subsequently report after the IPO, these institutions said that the
Syndicate Analysts decision to reduce their estimates during the time period when the roadshow
was occurring was very, very unusual, and they had never before seen that in 10 years.
Similarly, according to Reuters and The Wall Street Journal, the few investors who were told of
the revenue declines were shocked by the deceleration in Facebooks revenues, which raised
a significant red flag about Facebooks ability to generate the level of revenue that the market
expected, and called the Companys value into serious question. Indeed, institutions that
received this non-public information cancelled or cut their orders for Facebook shares, dropped
the price they were willing to pay, or sold their shares immediately after the IPO.
15.
However, because the market had not been put on notice of the fact that
Facebooks business had been materially impaired, in the week before the IPO, market demand
for Facebook shares reached levels that the financial press described as astronomical. In
response to this surge of demand, days before it went public, the Company and the underwriters
significantly increased the price and size of the IPO, boosting the price to $38 per share (from a
previously announced range of $28 to $35 per share), and increasing the size of the offering by
more than 80 million shares. All of the new shares made available to the public came from
selling insiders, including certain of the Companys directors and one of its underwriters,
Filed 02/28/13 Page 10 of 95
Goldman Sachs, who each decided to vastly increase the number of shares they were selling to
the public.
16.
With the market unaware of Facebooks pronounced revenue deterioration,
Facebook completed its IPO as scheduled after the close of the market on May 17. The IPO not
only generated billions of dollars for Facebook, but it made many of the Companys senior
executives and directors exceptionally rich.
Based on the IPO price, the stock held by
Facebooks 28-year-old CEO, Defendant Mark Zuckerberg, was worth $19 billion, making him
one of the wealthiest men in the world.
17.
Facebook stock began publicly trading the next day, Friday, May 18. After
opening at $42.05 on a surge of retail demand, Facebook stock immediately began to plummet,
falling back to the IPO price of $38 per share, and ultimately closing at $38.23, a performance
that analysts and the financial press concluded was surprising and disappointing.
18.
Beginning on the night of May 18 and continuing over the next several days,
news of the decline in Facebooks revenues began to emerge. On the night of May 18, Reuters
reported that, days before the IPO, Facebook had taken the rare and disruptive step of lowering
its guidance to analysts during the time period that its roadshow was occurring. This news swept
through the market and, over the weekend of May 19-20, members of the financial press reported
that this information was highly material and fundamentally affected the value of Facebooks
stock. For example, on May 19, Business Insider reported that Facebooks decision to reduce its
guidance mid-way through a series of meetings designed for the sole purpose of selling the
stock was highly material information. [S]uch a late change in guidance would mean that
Facebooks business was deteriorating rapidly between the start of the roadshow and the
middle of the roadshow. Any time a business outlook deteriorates that rapidly, alarm bells start
Filed 02/28/13 Page 11 of 95
going off on Wall Street, and stocks plunge. As Business Insider further noted, investors who
were not informed of this critical new information have every right to be furious. Because this
would have been highly material information that some investors had and others didnt the
exact sort of unfair asymmetry that securities laws are designed to prevent.
19.
On the very next trading day, Monday, May 21, Facebook shares collapsed.
Facebook stock opened sharply down from the IPO price and plummeted throughout the day on
extremely high trading volume, closing down at $34.03, a decline of nearly 11% from the IPO
price.
20.
Prior to the opening of trading on May 22, Reuters again shocked the market by
reporting that, while an investor roadshow was underway, lead underwriters Morgan Stanley,
J.P. Morgan, and Goldman Sachs had taken the highly unusual step of significantly cutting
their revenue forecasts for Facebook, but appeared to have told only a few major clients about
this highly negative development.
On Tuesday, May 22, Facebook shares again swiftly
plummeted. Facebook stock opened the day down sharply from the prior close, and ended the
trading session at $31 per share, a decrease of approximately 9%, again on extremely high
volume. Thus, in just two trading days over May 21 and 22 only Facebooks second and third
trading days as a public company its shares had fallen more than 18% from the IPO price,
wiping out billions of dollars of Facebooks market capitalization. As Bloomberg reported, the
collapse in Facebooks stock on May 21 and 22 was epic: based on that two-day decline,
Facebooks IPO became the single worst performing initial public offering in 10 years, making it
the flop of the decade.
21.
Following the collapse in Facebooks stock price, numerous market commentators
pointedly wrote that the Registration Statement failed to disclose highly material information
Filed 02/28/13 Page 12 of 95
regarding Facebooks revenue declines, and that the belated disclosure of this information had
significantly altered the total mix of information in the market. For example, Business Insider
reported that, This was selective disclosure of critical non-public information. Facebooks
amended prospectus did not say that the companys business had suddenly weakened and
managements outlook had changed. And that information is vastly more important than what
the prospectus did say, which was that users are growing faster than revenue.
22.
Similarly, Venture Beat, a widely read publication that covers technology and
finance, reported that Facebooks amended Registration Statement did not put investors on notice
that there had been a material change in Facebooks business in the weeks leading up to the IPO:
In that May 9 update [referring to the amended Registration Statement], Ebersman
decided to use vague language when describing how the companys second
quarter was looking. It was extremely understated, considering what we would
later find out. [T]his update itself didnt send any alarm bells to most
investors, and it shouldnt have. [T]he reality is that this wording was just too
vague to be construed by normal people as meaning anything more than what had
already been mentioned before. The fact is, there is nothing within the S-1
update on May 9 that would give normal investors the sense that there had been a
material change about Facebooks revenue prospects.
23.
Based on the facts alleged herein, Lead Plaintiffs assert claims under: (i) Section
11 of the Securities Act against Facebook, certain of its senior executives, its directors, and the
underwriters of its $16 billion IPO; (ii) Section 12(a)(2) of the Securities Act against Facebook,
certain of its senior executives, and the underwriters of its IPO; and (iii) Section 15 of the
Securities Act against Facebooks senior executives and directors.
II.
JURISDICTION AND VENUE

24.
The claims asserted herein arise under Sections 11, 12 and 15 of the Securities
Act, 15 U.S.C. 77k, 77l, and 77o.
25.
Filed 02/28/13 Page 13 of 95
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, because this is a civil
action arising under the laws of the United States.
26.
Venue is proper in this District pursuant to Section 22(a) of the Securities Act, 15
U.S.C. 77v, and 28 U.S.C. 1391(b), (c) and (d). Many of the acts and transactions that
constitute violations of law complained of herein, including the dissemination to the public of
untrue statements of material facts, occurred in this District.
27.
In connection with the acts alleged herein, Defendants directly or indirectly used
the means and instrumentalities of interstate commerce, including, but not limited to, the United
States mails, interstate telephone communications, and the facilities of national securities
exchanges.
III.
PARTIES
A. Lead Plaintiffs
28.
Lead Plaintiff the North Carolina Department of the State Treasurer on behalf of
the North Carolina Retirement Systems (North Carolina DST) is an arm of the Government of
the State of North Carolina, which is entrusted by statute with managing the pooled funds held
on behalf of the North Carolina Retirement Systems. The North Carolina Retirement Systems
are statutory retirement and benefit plans that cover more than 850,000 public employees and
teachers. North Carolina DST purchased 685,373 shares of Facebook in the IPO. On December
6, 2012, this Court appointed North Carolina DST as a Lead Plaintiff for this litigation.
29.
Lead Plaintiff the Arkansas Teacher Retirement System (Arkansas Teacher) is a
state-wide retirement system that provides retirement benefits for the employees of Arkansas
public schools and other educational institutions. As of June 30, 2011, Arkansas Teacher
managed more than $11.7 billion in assets for the benefit of its members. Arkansas Teacher
10
Filed 02/28/13 Page 14 of 95
purchased 246,849 shares of Facebook in the IPO. On December 6, 2012, this Court appointed
Arkansas Teacher as a Lead Plaintiff for this litigation.
30.
Lead Plaintiff the Fresno County Employees Retirement Association (Fresno)
provides retirement benefits for the employees of the County of Fresno, Superior Courts of
California Fresno, and for other participating agencies. As of March 31, 2012, Fresno managed
over $3.2 billion in assets for the benefit of its members. Fresno purchased 95,900 shares of
Facebook in the IPO. On December 6, 2012, this Court appointed Fresno as a Lead Plaintiff for
this litigation.
31.
Lead Plaintiff Banyan Capital Master Fund Ltd. (Banyan) is an investment fund
that has been in operation since 2004. Banyan purchased 1,415,862 shares of Facebook common
stock traceable to the IPO. On December 6, 2012, this Court appointed Banyan as a Lead
Plaintiff for this litigation.
32.
Lead Plaintiffs purchased Facebook common stock in or traceable to the IPO as
detailed in the certifications already on file with the Court and attached hereto as Appendix A,
and suffered damages as a result of the violations of the federal securities laws alleged herein.
B. Named Plaintiffs
33.
Named Plaintiffs Jose G. Galvan and Mary Jane Lule Galvan, a married couple,
jointly purchased 21,100 shares of Facebook stock on May 18, 2012 that were traceable to the
IPO. Named Plaintiffs purchases of Facebook common stock traceable to the IPO are detailed
in the certification already on file with the Court and attached hereto within Appendix A.
Named Plaintiffs suffered damages as a result of the violations of the federal securities laws
alleged herein.
11
Filed 02/28/13 Page 15 of 95
C. Defendants
1. Corporate Defendant
34.
Defendant Facebook is a Delaware corporation headquartered at 1601 Willow
Road, Menlo Park, California 94025.
The Company operates the worlds largest social
networking service through its website at www.facebook.com, which is accessed by more than
900 million active users per month. Facebook provides a platform for its users to, among other
things, create their own profiles, connect with other individuals they identify as friends, share
communications, post photographs, and play games with one another. On or about May 17,
2012, Facebook conducted its IPO, in which it issued 421,233,615 shares of its Class A common
stock to the public, with an underwriter option to issue an additional 63,185,042 shares of Class
A common stock, generating total proceeds of more than $16 billion. The IPO was conducted
pursuant to several documents that were filed with the SEC and disseminated to the investing
public, including: (i) Facebooks Registration Statement dated February 1, 2012 and filed with
the SEC on Form S-1, as amended by eight subsequent amendments, which contained versions
of the prospectus (the Registration Statement); and (ii) the final prospectus, which was filed
with the SEC on May 18, 2012 on Form 424(b)(4) (the Prospectus). Facebook securities
actively trade on the NASDAQ under the ticker symbol FB and, as of January 29, 2013, there
were 1,684,185,170 shares of its Class A common stock outstanding.
2. The Individual Defendants
35.
Defendant Mark Zuckerberg is the founder, Chairman and Chief Executive
Officer of Facebook. Zuckerberg signed the Registration Statement filed with the SEC on
February 1, 2012 and all subsequent amendments.
He also made numerous statements
concerning Facebooks business in Facebooks roadshow video and at Facebooks roadshow

meetings with investors, through which the Company marketed its IPO to investors. Zuckerberg
12
Filed 02/28/13 Page 16 of 95
sold 30.2 million shares of Facebook Class A common stock in the IPO for proceeds of
approximately $1.15 billion. Following the IPO, Zuckerberg retained control of approximately
56% of the voting power of Facebooks capital stock, rendering Facebook a controlled
company under the corporate governance rules for NASDAQ-listed companies. Because of his
senior position within and control of the Company, Zuckerberg possessed the power and
authority to control the contents of the Registration Statement and Prospectus, Facebooks press
releases, investor and media presentations, and other SEC filings.
36.
Defendant Sheryl K. Sandberg is Facebooks Chief Operating Officer (COO),
the Companys most senior officer behind Defendant Zuckerberg. Sandberg made numerous
statements concerning Facebooks business in Facebooks roadshow video and at Facebooks
roadshow meetings with investors. Because of her senior position within and control of the
Company, Sandberg possessed the power and authority to control the contents of the Registration
Statement and Prospectus, Facebooks press releases, investor and media presentations, and other
SEC filings.
37.
Defendant David Ebersman is Facebooks Chief Financial Officer (CFO).
Ebersman signed the Registration Statement filed with the SEC on February 1, 2012 and all
subsequent amendments. Ebersman also made numerous statements concerning Facebooks
business in Facebooks roadshow video and at Facebooks roadshow meetings with investors.
Because of his senior position with the Company, Ebersman possessed the power and authority
to control the contents of the Registration Statement and Prospectus, Facebooks press releases,
investor and media presentations, and other SEC filings.
38.
Defendant David M. Spillane is Facebooks Director of Accounting (DOA).
Spillane signed the Registration Statement filed with the SEC on February 1, 2012 and all
13
Filed 02/28/13 Page 17 of 95
subsequent amendments. Because of his senior position with the Company, Spillane possessed
the power and authority to control the contents of the Registration Statement and Prospectus,
Facebooks press releases, investor and media presentations, and other SEC filings.
39.
Defendants Zuckerberg, Sandberg, Ebersman, and Spillane are collectively
referred to as the Officer Defendants.

40.
Defendant Marc L. Andreessen is a Director of Facebook.
41.
Defendant Erskine B. Bowles is a Director of Facebook.
42.
Defendant James W. Breyer is a Director of Facebook.
43.
Defendant Donald E. Graham is a Director of Facebook.
44.
Defendant Reed Hastings is a Director of Facebook.
45.
Defendant Peter A. Thiel is a Director of Facebook.
46.
Defendants Andreessen, Bowles, Breyer, Graham, Hastings, and Thiel are
collectively referred to as the Facebook Board or the Facebook Board Defendants.

47.
The Facebook Board Defendants approved the IPO, signed the Registration
Statement and all subsequent amendments, and were directors of the Company at the time of the
IPO. They further participated in Facebook Board meetings and conference calls. In their
capacities as signatories of the documents set forth above, as well as by virtue of their authority
to approve the IPO, the Facebook Board Defendants possessed the power and authority to
control the contents of the Registration Statement and Prospectus, Facebooks press releases,
investor and media presentations, and other SEC filings.
48.
The Officer Defendants and the Facebook Board Defendants are collectively
referred to as the Individual Defendants.
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3. The Underwriter Defendants

49.
Defendant Morgan Stanley & Co. LLC (Morgan Stanley) was the lead
underwriter and lead book-running manager of the IPO, selling 162,174,942 shares of Class A
common stock in the IPO.
50.
Defendant J.P. Morgan Securities LLC (J.P. Morgan) was a co-lead underwriter
of the IPO, selling 84,878,573 shares of Class A common stock in the IPO.
51.
Defendant Goldman, Sachs & Co. (Goldman Sachs) was a co-lead underwriter
of the IPO, selling 63,185,042 shares of Class A common stock in the IPO.
52.
Defendant Allen & Company LLC was an underwriter of the IPO, selling
8,424,672 shares of Class A common stock in the IPO.

53.
Defendant Barclays Capital Inc. was an underwriter of the IPO, selling

54.
Defendant Blaylock Robert Van LLC was an underwriter of the IPO, selling
673,974 shares of Class A common stock in the IPO.

55.
Defendant BMO Capital Markets Corp. was an underwriter of the IPO, selling

56.
Defendant C.L. King & Associates, Inc. was an underwriter of the IPO, selling

57.
Defendant Cabrera Capital Markets, LLC was an underwriter of the IPO, selling

58.
Defendant CastleOak Securities, L.P. was an underwriter of the IPO, selling
15
59.
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Defendant Citigroup Global Markets Inc. was an underwriter of the IPO, selling

60.
Defendant Cowen and Company, LLC was an underwriter of the IPO, selling

61.
Defendant Credit Suisse Securities (USA) LLC was an underwriter of the IPO,
selling 9,477,755 shares of Class A common stock in the IPO.

62.
Defendant Deutsche Bank Securities Inc. was an underwriter of the IPO, selling

63.
Defendant E*TRADE Securities LLC was an underwriter of the IPO, selling

64.
Defendant Ita BBA USA Securities, Inc. was an underwriter of the IPO, selling

65.
Defendant Lazard Capital Markets LLC was an underwriter of the IPO, selling

66.
Defendant Lebenthal & Co., LLC was an underwriter of the IPO, selling 673,974
shares of Class A common stock in the IPO.

67.
Defendant Loop Capital Markets LLC was an underwriter of the IPO, selling

68.
Defendant M.R. Beal & Company was an underwriter of the IPO, selling 673,974

69.
Defendant Macquarie Capital (USA) Inc. was an underwriter of the IPO, selling
16
70.
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Defendant Merrill Lynch, Pierce, Fenner & Smith Incorporated was an
underwriter of the IPO, selling 27,380,185 shares of Class A common stock in the IPO.
71.
Defendant Muriel Siebert & Co., Inc. was an underwriter of the IPO, selling

72.
Defendant Oppenheimer & Co. Inc. was an underwriter of the IPO, selling

73.
Defendant Pacific Crest Securities LLC was an underwriter of the IPO, selling

74.
Defendant Piper Jaffray & Co. was an underwriter of the IPO, selling 421,234

75.
Defendant Raymond James & Associates, Inc. was an underwriter of the IPO,
selling 421,234 shares of Class A common stock in the IPO.

76.
Defendant RBC Capital Markets, LLC was an underwriter of the IPO, selling

77.
Defendant Samuel A. Ramirez & Company, Inc. was an underwriter of the IPO,

78.
Defendant Stifel, Nicolaus & Company, Incorporated was an underwriter of the
IPO, selling 421,234 shares of Class A common stock in the IPO.

79.
Defendant Wells Fargo Securities, LLC was an underwriter of the IPO, selling

80.
Defendant The Williams Capital Group, L.P. was an underwriter of the IPO,
17
81.
Filed 02/28/13 Page 21 of 95
Defendant William Blair & Company, L.L.C. was an underwriter of the IPO,

82.
The Defendants named in paragraphs 49-81 are collectively referred to as the
Underwriter Defendants.
IV.
OVERVIEW
A. Facebooks Meteoric Rise Creates Unprecedented Market Anticipation For Its IPO
83.
In February 2004, Defendant Zuckerberg founded Facebook in his Harvard
University dorm room as a social networking website through which Harvard students could
connect to one another and share information about their lives. In July 2004, Facebook was
formally incorporated as a private company.
Facebook soon opened its website to other
universities and the general public, and proved to be extremely popular.

84.
Between the time of its founding and its IPO in May 2012, Facebook experienced
meteoric growth in its user base and its operations. Within eight years, Facebook became the
largest social network in the world and one of the countrys best-known technology companies.
As of March 31, 2012, Facebook reported that 901 million active users accessed its website
each month nearly half of all people who use the Internet and approximately 13% of the
worlds population. At the time of its IPO, Facebooks site was the number one website in the
world as measured by the total minutes spent by users on the site and total page views.
85.
In 2011, as Facebook sought to rival cash-rich technology companies such as
Google and Apple, the Company began to seriously explore engaging in an IPO. While the
Companys shares traded on private exchanges, accessing the public markets through an IPO
would provide the Company with several unique benefits. Among other things, an IPO would
provide the Company with large amounts of cash necessary to compete with the giants in the
technology field through acquisitions and expansion of its own operations. It would also create a
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highly liquid market for its stock, and had the potential to significantly increase its value by
tapping into widespread market demand.
86.
By the end of 2011, reports emerged that Facebook was exploring filing for one of
the largest IPOs in history. For example, in November 2011, The Wall Street Journal reported
that Facebook was
exploring raising $10 billion in its IPO what would be one of the largest
offerings ever in a deal that might assign Facebook a $100 billion valuation, a
number greater than twice that of such stalwarts as Hewlett-Packard Co. and 3M
Co. A Facebook IPO has been hotly anticipated for several years, and viewed as
a defining moment for the latest Web investing boom.
87.
By January 2012, news had spread that Facebook would file for its IPO on
February 1, and market anticipation of the offering reached nearly unprecedented levels. As
reported by TheStreet.com, analysts said that Facebooks offering was so significant that it would
give the entire market a much-needed lift: [A]n analyst from GreenCrest Capital said that
Facebook is obviously the IPO of the year, maybe the IPO of the decade, likely the largest IPO
in dollar value in American history. The market is a pretty dim environment right now, but you
have a very bright light coming in. Reuters quoted the CEO of investment bank Montgomery
& Co. as stating that [t]he Facebook IPO will be iconic. Given the significance ascribed to
Facebooks IPO, investor demand for Facebook stock was expected to be immense. As the Los
Angeles Times reported, The minute the IPO is filed, there will be pandemonium, said [an
analyst from] IPO Boutique[], who says he has never seen anything quite like the pent-up
demand for Facebook shares.
88.
Against the backdrop of what was expected to be one of the largest and most
closely-watched offerings in history, the market was intently focused on the information that
would be set forth in Facebooks Registration Statement and Prospectus. Because Facebook had
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operated as a private company, it had never before publicly disclosed detailed information
concerning its business and financial condition. As reported by the Los Angeles Times:
Can Facebook stake its fortune in social networking in the wildly profitable way
Google did with the Internet search? Swarms of investors cant wait to find out.
Even everyday users are looking forward to poring over Facebooks prospectus
the first in-depth glimpse of Facebooks financials . How much money the
company is making is a closely-guarded secret. But that will soon change.
B. Facebook Files For Its IPO, And The Market Reacts Positively To Its Disclosures
Concerning Its Revenue, Growth, And Positioning In The Mobile Market
89.
On February 1, 2012, Facebook publicly filed its initial Registration Statement
with the SEC. Investor interest in these disclosure documents was so intense that the SECs
website crashed [] under the pressure of investors seeking access to the Facebook filing
document, according to The Wall Street Journal.
90.
The Registration Statement highlighted the Companys dominant market position
and growth. It stated that, [s]ince January 2011, Facebook.com has been the number one
website worldwide, with more than 845 million monthly active users as of December 31,
2011, who collectively spent on average 9.7 billion minutes per day on Facebook. It further
stated that the Company has consistently experienced rapid growth in the number of users and
their engagement.
91.
As the Registration Statement explained, Facebook generally does not charge its
users for any of the social networking services it provides. Instead, Facebooks business model
depends almost entirely on selling advertisements to companies that want to reach Facebooks
user base, whose ads Facebook displays to its members as they use its website. Thus, the key
driver of the Companys growth, and the principal determinant of Facebooks value, was its
advertising revenue. Indeed, the Companys advertising revenue accounted for 98%, 95% and
85% of the Companys revenues in 2009, 2010, and 2011.
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92.
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The Registration Statement disclosed that Facebooks advertising and total
revenue grew at a torrid pace in the years before its IPO. Between 2007 and 2011, Facebooks
annual advertising revenue grew from approximately $153 million to $3.2 billion multiplying
more than twenty times. In turn, during this time period, Facebooks annual revenue grew from
$153 million to more than $3.7 billion a 24-fold increase. Moreover, in the year before its IPO,
Facebooks revenue surged 88%, climbing from almost $2 billion in 2010 to the aforementioned
$3.7 billion in 2011, which was due primarily to a 69% increase in advertising revenue,
according to the Registration Statement.
93.
Facebook also described certain factors that were critical to its financial results,
two of which are relevant here. The first and principal factor was the growing usage of
Facebook on mobile devices, as opposed to the use of Facebook through traditional, stationary
desktop computers. Mobile devices include those devices through which people access the
Internet remotely, such as smart mobile phones (like iPhones) and tablets (like iPads). The
usage of Facebook on mobile devices was critical to Facebooks financial performance for three
principal reasons.
94.
First, Facebooks mobile market was extremely large. At the time Facebook filed
its initial Registration Statement, 425 million (or approximately half) of Facebooks monthly
users accessed the website through their mobile devices, either as a supplement to their use of
Facebook through desktop computers or as their only means of accessing Facebook. Second,
Facebooks mobile users were growing more rapidly than the rest of the Companys user base.
As Facebook stated, the growth rate for its mobile users will continue to exceed the growth rate
of our overall [member base] for the foreseeable future. Third, while the Company showed
large volumes of advertising to users who accessed its website through desktop computers, it did
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not yet show advertisements to its mobile users. Thus, the mobile market was an untapped
revenue stream, and an extremely important engine of Facebooks future growth.
95.
Accordingly, in the Registration Statement, Facebook emphasized that the mobile
market was a critical area of growth and a significant opportunity that the Company was
actively developing products to capitalize on. Facebook stated that [i]mproving our mobile
products and increasing mobile usage of Facebook are key company priorities, and it was
devoting substantial resources to developing engaging mobile products and experiences for a
wide range of platforms by working across the mobile industry to improve the Facebook
experience on mobile devices and make Facebook available to more people around the world.
96.
The second factor that Facebook identified as important to its financial results was
the Companys product decisions.
Facebooks product decisions were decisions that the
Company made concerning the design and features of its website, the type of advertising it
displayed, and the price of its advertisements. These product decisions were important to the
Companys financial results because they could result in new advertising products, the
elimination of certain advertisements, or changes in the price of advertisements each of which
could impact the amount of advertising Facebook displayed and, in turn, its revenues.
97.
The market reacted positively to the disclosures in the Registration Statement, as
the financial press reported that Facebooks advertising revenue growth was strong, and the
Company was well-positioned to capitalize on the mobile market.
For example, after the
Company filed its initial Registration Statement, Bloomberg reported that Facebook expected its
next 1 billion users to come mainly from mobile devices, and was therefore increasing its
focus on mobile technology to take advantage of the shift to smartphones and tablets. The
report quoted the director of research at investment-advisory firm Renaissance Capital as stating
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that Investors are still very much willing to pay up for growth. Theres just phenomenal interest
in this company and its potential. Similarly, The New York Times reported that the filing shed
some light on how [Facebooks] meteoric run has turned the upstart into a formidable money
maker. [M]any analysts believe Facebooks fortunes will rapidly multiply as advertisers
direct more and more capital to the Webs social hive.
C. The SEC Questions Facebooks Disclosures
98.
On February 28, 2012, the SEC sent the Company a comment letter concerning
certain of the Companys disclosures in the initial Registration Statement. Among other things,
the SEC questioned certain of Facebooks disclosures about potential factors that might impact
its revenues, including growing mobile usage, and instructed the Company to provide additional
information to investors on these subjects.
99.
As the SEC noted, Facebooks Registration Statement contained a risk factor
purporting to warn investors that Facebooks revenue may be negatively affected by increasing
mobile usage if certain contingencies occurred. Specifically, this disclosure stated as follows
Growth in use of Facebook through our mobile products, where we do not
currently display ads, as a substitute for use on personal computers may
negatively affect our revenue and financial results.
We had more than 425 million MAUs [monthly active users] who used Facebook
mobile products in December 2011. We anticipate that the rate of growth in
mobile users will continue to exceed the growth rate of our overall MAUs for the
foreseeable future, in part due to our focus on developing mobile products to
encourage mobile usage of Facebook. Although the substantial majority of our
mobile users also access and engage with Facebook on personal computers where
we display advertising, our users could decide to increasingly access our products
primarily through mobile devices. 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. Accordingly, if users continue to increasingly
access Facebook mobile products as a substitute for access through personal
computers, and if we are unable to successfully implement monetization strategies
for our mobile users, our revenue and financial results may be negatively affected.
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100.
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The SEC instructed Facebook that, rather than merely saying that its results
may be negatively affected under certain circumstances, it must fully address the potential
impact on the Companys revenue if the contingencies concerning mobile usage materialized.
Specifically, the SEC comment letter stated that, assuming that the trend towards mobile
continues and your monetization efforts are unsuccessful, ensure that your disclosure fully
addresses the potential consequences to your revenue and financial results rather than just saying
that they may be negatively affected.
101.
In addition, the SEC directed Facebook to disclose any trends that were having, or
were reasonably expected to have, a material impact on its revenue growth and advertising
revenue growth. Specifically, the SEC instructed Facebook to disclose, pursuant to Item 303(a)
of SEC Regulation S-K, any known trends or uncertainties that have had, or that you reasonably
expect will have, a material favorable or unfavorable impact on sales or results of operations.
102.
On March 7, 2012, Facebook responded to the SECs comment letter. In its
response, Facebook stated that it could not disclose the potential impact of mobile usage on its
revenue because it was unable to determine that impact. In particular, Facebook asserted that
because many of its mobile users also continued to access Facebook through their desktop
computers, the Company cannot specifically determine how mobile use is a substitute for, rather
than incremental to, use on personal computers. Thus, Facebook stated that it was unable to
specifically assess the impact of increasing mobile use on its revenue and financial results at
that time.
D. As Facebook Prepares For Its Roadshow, The Company Continues To Emphasize
Its Growth Prospects In The Mobile Market To Investors
103.
During March and April 2012, Facebook was preparing for a critical part of its
IPO: its roadshow, which was scheduled to begin on May 7 and end on May 17. The
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roadshow consisted of a series of meetings, primarily with groups of institutional investors, held
across the country. During these meetings, Facebooks most senior executives including
Defendants Zuckerberg, Sandberg, and Ebersman made presentations and answered investor
questions. The roadshow was one of the most important parts of the IPO process because it was
a principal way that Facebook and the lead underwriters marketed the IPO directly to
institutional investors, and thereby increased investor demand for the Companys stock.
104.
To track demand for the Companys stock, during the roadshow, the lead
underwriters built the book of orders for the IPO. The book contained the number of shares
that each institutional investor wanted to purchase, as well as the price that each investor was
willing to pay for the stock. Based on the orders in the book, at the end of the roadshow,
Facebook and the lead underwriters determined how many shares to sell in the IPO and the price
per share. These determinations not only set the value of the IPO, but they also set Facebooks
market value as a company.
105.
The two Facebook executives who had principal responsibility for managing
Facebooks roadshow were Defendant Ebersman and Facebooks Treasurer, Cipora Herman.
Michael Grimes, the Head of Technology Investment Banking at lead underwriter Morgan
Stanley, served as the Companys principal advisor on behalf of the Underwriter Defendants.
106.
In preparation for the roadshow, on April 16, 2012, Defendant Ebersman met with
the Syndicate Analysts. The purpose of the meeting was for Facebook to provide the Syndicate
Analysts with information about its business, including its estimated revenues for the second
quarter of 2012 and the full year. Based on that information, the Syndicate Analysts would
generate estimates of the Companys revenues and financial results. These estimates would then
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be incorporated into institutional selling memoranda, which the Underwriter Defendants sales
force would use to market the IPO to institutional investors.
107.
At the April 16 meeting, Ebersman informed the Syndicate Analysts that
Facebooks internal revenue estimate for the second quarter, which had begun on April 1, ranged
from $1.1 to $1.2 billion. Ebersman further informed the Syndicate Analysts that Facebooks
internal revenue estimate for the 2012 fiscal year was $5 billion. These figures translated into
year-over-year growth rates of as much as 34% for the second quarter and 35% for the year.
108.
The Syndicate Analysts incorporated the Companys internal estimates into their
financial models and generated estimates that mirrored Facebooks guidance. For example, the
analysts for lead underwriters Morgan Stanley, J.P. Morgan, and Goldman Sachs, as well as Bank
of America, concluded that Facebooks revenues for the second quarter would be at the high end
of Facebooks range of $1.1 billion to $1.2 billion, and its revenues for the full-year 2012 would
be approximately $5 billion. These estimates, which are set forth below, translated into expected
year-over-year growth rates of up to 35% for the second quarter, and 39% for the year:
Underwriter
2Q 2012 Revenue
Growth
Rate
Annual Revenue
Growth Rate
Goldman Sachs
$1.207 billion
35%
$5.169 billion
39%
J.P. Morgan
$1.182 billion
32%
$5.044 billion
36%
Morgan Stanley
$1.175 billion
31%
$5.036 billion
36%
Bank of America
$1.166 billion
30%
$5.040 billion
36%
109.
These estimates were then incorporated into the institutional selling memoranda
that these Underwriter Defendants used to market the IPO to investors.
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110.
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Meanwhile, Facebook continued making positive public statements emphasizing
its growth and the steps it was taking to capitalize on the mobile market, which gave rise to
similar expectations for Facebooks performance among analysts who published their reports to
the market. For example, in an amended Registration Statement filed on March 7, Facebook
disclosed that it had taken a key step toward generating revenue from its mobile users by starting
to display advertisements to them. Specifically, Facebook stated that it was beginning to display
one of its principal advertising products, called Sponsored Stories, to its mobile users.
111.
Facebook also underscored that it was achieving greater penetration in the mobile
market, thereby expanding its revenue opportunities there.
In its amended Registration
Statement, Facebook stated that its mobile application the product through which mobile users
accessed the Companys website was the most popular mobile application among
smartphone users in the United States. In an amended Registration Statement filed on April 23,
2012, Facebook further stated that, as of March 31, 2012, the number of users who accessed its
website through mobile products had grown to 488 million, an increase of 15% over such users
as of December 2011.
112.
In the amended Registration Statement filed on April 23, 2012, Facebook also
disclosed its first quarter results. Facebook reported more than $1 billion in revenue for the first
quarter of 2012, an increase of 45% from the first quarter of 2011, which was driven by a 35%
increase in the number of ads delivered. Although Facebooks revenue had declined from the
fourth quarter of 2011, Facebook stated that this was driven by seasonal trends in advertising
spending, which traditionally surges in the fourth quarter during the holiday season, and
decreases in the first quarter. Facebook stated that this seasonality may have been partially
masked in prior years by [t]he rapid growth in our business.
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113.
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On May 3, 2012, Facebook filed an amended Registration Statement confirming
that it was aiming to conduct an IPO of historic dimensions. Facebook announced that it was
planning to sell more than 337 million shares in the offering (consisting of 180 million shares
from Facebook, and more than 157 million from selling shareholders), and was planning to price
the shares between $28 and $35. At these levels, the IPO would raise up to approximately $12
billion in proceeds and result in a market valuation of as much as $96 billion for Facebook
numbers that would make Facebook the largest company to go public in history, and the IPO the
largest ever for a technology company (and one of the largest ever for any U.S. company). The
IPO was also slated to make Defendant Zuckerberg one of the richest men in the world: at the
top of the price range, his Facebook holdings would be worth $18.7 billion.
114.
That same day, Facebook posted its roadshow video presentation on its website,
which prominently featured Defendants Zuckerberg, Sandberg, and Ebersman.
In the
presentation, Facebook again emphasized its continuing growth, stating that [o]ur advertising
revenue has grown from $272 million in 2008 to $3.2 billion last year, and weve only just
begun. Facebook also stated that the mobile market was a critical growth opportunity that the
Company was well-positioned to capitalize on. Specifically, COO Sandberg stated that the
mobile market was a key area of growth for Facebook and that Facebook had just introduced
Sponsored Stories on mobile devices to monetize its mobile users.
Sandberg further
represented that Facebook was not experiencing challenges in the mobile market, stating that,
[f]or most companies, the mobile environment is a challenge, because its so small it requires
new ad formats, but thats not the case for Facebook. Since sponsored stories are now available
on mobile, they become a really natural part of the Facebook mobile experience.
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115.
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Analysts and the financial press again reacted positively to Facebooks
disclosures. For example, on May 4, 2012, the day after Facebook released the roadshow video,
Bloomberg ran an article with the headline Facebooks Sandberg Says Mobile Advertising Is
Key Growth Area, reporting that Sandberg, in a video recorded for prospective investors, said
one of the companys main sources of revenue gains will be mobile advertising. Mobile is a key
area of growth for Facebook, Sandberg said in the video, which Facebook will use to drum up
interest in its shares before a planned initial public offering. On May 7, 2012, after Facebook
announced the price range and size of the IPO, Reuters reported that the size of the IPO reflects
the companys growth and bullish expectations about its money making potential as a hub for
everything from advertising to commerce. Similarly, on May 4, 2012, The Wall Street Journal
reported that Facebook pulled back the curtain on how much it thinks it is worth, targeting a
valuation as rich as $96 billion in what would be a record debut for an American company.
Facebooks IPO will be a watershed moment for Silicon Valley, spawning a new generation of
millionaires and a handful of billionaires, including founder and Chief Executive Mark
Zuckerberg, whose stake is worth as much as $18.7 billion.
116.
Thus, by the time that Facebooks roadshow was scheduled to begin in early May,
demand for Facebook stock remained extremely high. As The New York Times reported on May
3:
Facebook, which plans to make a market debut this month that could value it at
$86 billion, is the stock that everyone seems to want. The excitement over
Facebook has come on the back of its rapid growth. For many, Facebook is the
Internet. After a flurry of eye-popping market debuts by other Internet start-ups,
Facebooks will be the biggest yet. Demand to attend the Facebook
[roadshow] presentations has been extraordinarily high, with underwriters already
drawing up waiting lists for the meetings[.]
117.
Similarly, on May 1, Reuters quoted an analyst from the research firm IPO
Boutique as stating that I have not seen as broad based interest in an IPO since Google.
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Investor demand is immense. I expect a roadshow that will rival all roadshows where investors
will be turned away at the door.
E. As Facebook Begins Its Roadshow, It Determines That Its Revenues For The Second
Quarter And The Year Have Been Materially Impacted
118.
On May 7, 2012, Facebook began its roadshow with a presentation to investors in
New York City. As expected, investor interest was overwhelming. The Wall Street Journal
reported that the line leading to a second-floor ballroom where the meeting was scheduled to be
held stretched down the first floor and spilled out of the hotel for nearly half a city block.
More than 500 of the countrys most prominent investors and analysts were in attendance.
119.
At the roadshow meeting, Facebook played the video presentation, described
above in paragraphs 114-115, in which Defendant Sandberg emphasized the Companys strong
growth prospects and ability to capitalize on the mobile market.
Afterwards, Defendants
Zuckerberg, Ebersman, and Sandberg took the stage and answered investors questions, including
a question concerning the Companys plans to boost revenue from mobile products, according
to The Wall Street Journal.
120.
Based on the Companys roadshow presentation and the disclosures in the
Registration Statement, analysts widely recommended that investors buy Facebook stock. On
May 8, The Wall Street Journal summarized the overwhelmingly positive analyst coverage in an
article titled Facebook Gets Bullish Reception Wall Street Analysts Sound Positive Notes
Before IPO; Valuation of $160 Billion? which reported that:
Analysts are starting to chime in with support for the bullish case on social
network Facebook Inc. ahead of its initial public offering. Sterne Agee on
Monday initiated coverage at buy[.] It isnt typical for analysts to publish
research before a company goes public. But Sterne did so because many clients
were considering investing, said initiating analyst Arvind Bhatia in an interview.
[Bhatia] set a one-year price target of $46 for the stock, solidly above the range of
$28 to $35 a share targeted by Facebook for its IPO. Facebook had 48% of the
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world-wide Internet population, and they have half a percent of the advertising
market world-wide, Mr. Bhatia. We think they have significant runway ahead
of them, referencing the companys potential for growth.
121.
Analysts also widely reported that, for the second quarter and year-end 2012,
Facebook would experience revenue growth rates of at least 35% year-over-year, based in part on
the Companys ability to make money from its mobile users. For example, the Sterne Agee
report described in the above paragraph emphasized Facebooks strong positioning in the mobile
market, stating that, [w]ith 488 million MAUs [monthly active users] using Facebook mobile
products in the month of March 2012, FB clearly has the reach on mobile platforms.
Furthermore, the Facebook mobile app was the most downloaded app in the month of January
2012. Thus, Sterne Agee concluded that mobile monetization [is] a significant long-term
growth opportunity for FB and Facebook could triple its revenue in the next 4 years based in
part on its mobile monetization potential. For 2012, Sterne Agree projected that Facebook
would report more than $1.2 billion in revenue for the second quarter (a 36% increase over its
revenue for the second quarter of 2011) and more than $5 billion in revenue for the year (a 35%
increase over its revenue for full-year 2011).
122.
Unbeknownst to investors, however, within hours of Facebooks first roadshow
meeting, Facebook determined that two developments in its business had severely impaired its
estimated revenues for the second quarter and the full year, and thus, its revenues were going to
be much lower than the Company had led potential investors to believe. First, during the second
quarter of 2012, as the Companys users had increasingly migrated from desktop computers
(where the Company displayed large amounts of ads) to mobile devices (where Facebook
showed less advertising), the Company was generating far less advertising revenue than it had
expected. Second, the Company had made certain product decisions in the second quarter of
2012 that reduced the average amount of advertisements displayed on each page of Facebooks
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website, which, in combination with the shift to mobile usage, had exacerbated the decline in
Facebooks expected revenues.
123.
Accordingly, on the evening of May 7, 2012, Defendant Ebersman approached the
lead Morgan Stanley banker on the IPO, Michael Grimes, and informed him that, based on
second quarter data received to date, Ebersman was no longer confident that Facebook would
meet its internal revenue estimates. According to Grimes sworn testimony in the Massachusetts
Enforcement Action, Ebersman informed Grimes that, based upon their experience in Q2 to
date, [Ebersman] was less confident in his financial projections in reaching or exceeding his
financial projections than previously. As Grimes testified, Ebersman further informed him that
the two developments noted above, i.e., increasing mobile usage and the Companys product
decisions, had caused the rapid deterioration in Facebooks revenues.
124.
Indeed, by no later than May 8, Facebook had already materially lowered its
internal revenue figures due to these developments. Specifically, Facebook determined that its
revenue for the second quarter would be as low as $1.1 billion, or more than 8.3% below the top
of its prior range. Further, the Company determined that these factors were expected to continue
to negatively impact its revenue for the rest of the year. Thus, Facebook was now estimating that
its revenue for 2012 would be between $4.825 billion and $4.85 billion, or as much as $175
million less than previously estimated, a decline of up to 3.5%. Significantly, Facebooks revised
revenue estimates translated into sharply lower year-over-year revenue growth rates of as little as
23% for the second quarter and 30% for the year, as compared to growth rates of as much as
34% for the second quarter and 35% for the year based on the Companys prior estimates.
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F. Facebook Discloses Its Severe Revenue Declines To A Select Group Of Investors, But
Not To The Market
125.
On May 8, 2012, immediately after Facebook had revised its expected revenues
for the second quarter and the year materially downward, its most senior executives determined
that the change was so significant that it warranted disclosure to the Syndicate Analysts. Thus,
that day, Facebooks Treasurer, Cipora Herman, sent an email to employees in the finance
department with the subject line: Q2 estimates from analysts IMPORTANT PLS THIS
MORNING. Herman wrote that Facebook had updated our forecast and were trying to gauge
how far off our new forecast is from where the analysts are coming out. Herman stated that she
and Morgan Stanley bankers immediately needed to see the q2-q4 by quarter revenue estimates
from the analysts for whom we have detailed models, and that she was [c]opying [a Morgan
Stanley banker] on this so we can get some efficiency I dont want to be the bottleneck in
getting the info to MS.
126.
As noted above, Facebooks revised revenue figures were far below the Syndicate
Analysts estimates. Accordingly, later that day, after Morgan Stanley bankers had compared
Facebooks revenue figures with the Syndicate Analysts estimates, Grimes advised Ebersman
that Facebook should immediately provide its new revenue figures to the Syndicate Analysts so
that they could revise their models based on this new information and provide it to the
Companys largest potential investors, thereby informing them of the change in Facebooks
financial condition.
127.
As emphasized by the SEC in its February 28, 2012 comment letter to Facebook,
Item 303(a) of SEC Regulation S-K requires public disclosure of any known trends or
uncertainties that have had or that the registrant reasonably expects will have a material
favorable or unfavorable impact on net sales or revenues or income from continuing operations.
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17 C.F.R. 229.303. In addition to the identification of such known trends, Item 303 requires
disclosure of (i) whether those trends have had or are reasonably expected to have a material
unfavorable impact on revenue; and (ii) the extent of any such impact on revenue. Moreover,
pursuant to SEC Regulation C, registrants have an overarching duty to disclose material
information necessary to ensure that representations in a registration statement are not
misleading. Specifically, Rule 408 states that, In addition to the information expressly required
to be included in a registration statement, there shall be added such further material information,
if any, as may be necessary to make the required statements, in light of the circumstances under
which they are made, not misleading. 17 C.F.R. 230.408(a).
128.
However, Facebook did not publicly disclose the information that it had decided
to provide the Syndicate Analysts. Instead, on the night of May 8, 2012, Facebook executives,
including Ebersman and Herman, with input from Grimes, decided that the Company would file
an amended Registration Statement containing an extremely vague and limited disclosure about
certain trends in the Companys business. Notably, this new disclosure would continue to
represent only that increasing mobile usage and the Companys product decisions might have a
negative impact on Facebooks revenue. Accordingly, on May 9, 2012, the Company filed an
amended Registration Statement, which stated as follows:
Based upon our experience in the second quarter of 2012 to date, the trend we saw
in the first quarter of DAUs [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 part due to certain pages having fewer ads per page as a result of
product decisions. For additional information on factors that may affect these
matters, see Risk FactorsGrowth 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 and financial results and
Risk FactorsOur culture emphasizes rapid innovation and prioritizes user
engagement over short-term financial results.
34
129.
Filed 02/28/13 Page 38 of 95
This new disclosure was itself materially false and misleading. In the amended
Registration Statement, Facebook disclosed only that, as a result of increasing mobile usage and
its product decisions, the growth in the Companys users was exceeding the growth in the
number of ads it was delivering. Significantly, nowhere in the amended Registration Statement
did Facebook state that these factors had already materially impaired its revenue, or otherwise
describe the impact they were having on its business. To the contrary, in the amended
Registration Statement, Facebook misleadingly repeated the same purported risk disclosure
that it had included in its prior registration statements: namely, that these factors only may
negatively affect our revenue and financial results, when, in reality, Facebook had already
determined that they had materially and negatively impacted its revenue and financial results.
130.
The actions that Facebook took after the Company filed the amended Registration
Statement confirm that the decline in Facebooks revenue estimates was highly material, not
conveyed by the May 9 amended Registration Statement, and not otherwise part of the total mix
of information in the market. Specifically, within minutes after Facebook filed its amended
Registration Statement on May 9, Facebook contacted the Syndicate Analysts to tell them what
the amended Registration Statement did not provide notice of namely, that growing mobile
usage and the Companys product decisions had already had a material negative impact on the
Companys revenues, and that Facebook had cut its guidance as a direct result. Facebook
provided this information to the analysts precisely because it understood that the market was
unaware that these factors had negatively impacted its revenues, and that the magnitude of these
impacts was significant. Indeed, had the market been aware of these critical facts, or had these
facts been unimportant, there would have been no reason for Facebook to communicate this
information to the Syndicate Analysts.
35
131.
Filed 02/28/13 Page 39 of 95
The manner in which Facebook chose to contact the Syndicate Analysts further
confirms that the Companys revenue cuts were highly material and not part of the information in
the marketplace. SEC Regulation FD generally provides that, whenever an issuer discloses
material nonpublic information about its business to an analyst in connection with an offering,
the issuer must also disclose that same information to the public. However, under certain
circumstances, Regulation FD provides a limited exception to this disclosure requirement for
information that is conveyed through [a]n oral communication in connection with an offering.
Because Facebooks senior executives understood that the Companys lowered guidance was
material nonpublic information that would have to be publicly disclosed if it was
communicated in writing, they sought to avail themselves of the exception for oral
communications. Specifically, in an effort to avoid Regulation FD in the event that it applied,
Ebersman, Herman, and Grimes decided that Facebook would not convey the lowered guidance
to the Syndicate Analysts in writing, but would do so over the phone, by reading the information
to them, in a series of calls that lasted for days.
132.
Accordingly, within twelve minutes after Facebook filed the amended
Registration Statement, Treasurer Herman began calling the Syndicate Analysts from her
Philadelphia hotel room. With calls to the Syndicate Analysts scheduled every 15 minutes,
Herman called a total of eleven Syndicate Analysts on the night of May 9, including all of the
lead underwriters analysts.
On May 10 and May 15, Herman called an additional eight
Syndicate Analysts to inform them of Facebooks lowered guidance.

133.
Herman conducted these nineteen separate phone calls with the aid of a script that
Grimes had prepared for her. This script provides further confirmation that the market was
unaware of the fact that growing mobile usage and the Companys product decisions had had a
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material negative impact on Facebooks revenue. Indeed, in contrast to the vague and inadequate
disclosure that Facebook made on May 9, the script that Herman used specifically stated that
these trends had negatively impacted Facebooks revenue and that Facebook had significantly cut
its revenue estimates as a result. Specifically, the script stated as follows:
I wanted to make sure you saw the disclosure we made in our amended filing.
The upshot of this is that we believe we are going to come in [on] the lower end
of our $1.1 to $1.2 bn range for Q2 based upon the trends we described in the
disclosure. A lot of investors have been focused on whether the trend of ad
impressions per user declining (primarily as a result of mobile) was a one-time, or
continuing, occurrence. As you can see from our disclosure, the trend is
continuing. You can decide what you want to do with your estimates, our long
term conviction is unchanged, but in the near term we see these trends continuing,
hence our being at the low end of the $1,100 + $1,200 range.
134.
Although Grimes original script did not provide the impact of these factors on
Facebooks yearly revenues, Herman specifically wrote this information into the script. Herman
wrote that because of trends/headwinds over the next six to nine months as this run[s] through
the rest of the year, [Facebook] could be 3 to 3 and a half percent off the 2012 $5 billion
[revenue] target that was previously given to the Syndicate Analysts.
135.
The actions that the Syndicate Analysts took after being informed of the cuts to
Facebooks revenue estimates provide further confirmation that these declines were highly
material, and that the market was unaware of this significant information. Based on the new
information provided by Herman, a significant number of the Syndicate Analysts sharply
lowered their revenue estimates for Facebook to reflect the impact of the new information they
had been told.
Indeed, as Morgan Stanley admitted in a statement issued after news of
Facebooks revenue cuts was revealed to the market following the IPO, a significant number of
research analysts in the syndicate who were participating in investor education reduced their
earnings views after May 9 to reflect their estimate of the impact of the new information.
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136.
Filed 02/28/13 Page 41 of 95
For example, the Syndicate Analysts of the three lead underwriters, as well as
Bank of America, produced much lower revenue figures that were all within Facebooks new
guidance and reflected significant deterioration in the Companys business. As set forth below,
these analysts cut their estimates of Facebooks annual revenue by as much as 6%, and their
estimates of Facebooks second quarter revenue by as much as 7%.
Underwriter
2Q 2012 Revenue
Decrease
from April
Estimate
Goldman Sachs
$1.125 billion
-6.79%
$4.852 billion
-6.13%
J.P. Morgan
$1.096 billion
-7.28%
$4.839 billion
-4.06%
Morgan Stanley
$1.111 billion
-5.45%
$4.854 billion
-3.61%
Bank of America
$1.100 billion
-5.66%
$4.815 billion
-4.46%
137.
Annual Revenue
Decrease
from April
Estimate
As Facebook understood they would, the Syndicate Analysts immediately
provided this new information to some of the Companys most important potential investors a
select, hand-picked group of some of the biggest hedge funds and other institutions on Wall
Street. In particular, in the days immediately following May 9, the Syndicate Analysts made a
series of private phone calls to these select investors to inform them of an extraordinary piece of
news: in the midst of the Facebook roadshow, these analysts had taken the extremely rare step of
cutting their revenue estimates for the Company they were actively promoting as a model of
rapid growth.
138.
The chosen few investors who received this critical information reacted with
astonishment. As Reuters would later report after Facebooks IPO:
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The sudden caution very close to Facebooks initial public offering while an
investor road show was underway was a big shock to some, said two investors
who were advised of the revised forecast. This was done during the
roadshow Ive never before seen that in 10 years, said a source at a mutual fund
firm who was among those called by Morgan Stanley.
139.
These investors immediately recognized that the lowered revenue estimates meant
that there had been a significant negative change in Facebooks financial condition and value. As
was reported by The Wall Street Journal after the IPO, the lowered revenue figures raised a
significant red flag to those investors who received them. Similarly, according to Reuters,
That deceleration [showed by the revised revenue figures] freaked a lot of people out. This
information caused many investors who received it to change their investment decisions by
cancelling or reducing orders, or reducing the price they were willing to pay for Facebook stock.
For example, after the IPO, The Wall Street Journal reported that when the hedge fund Capital
Research & Management was warned by an Underwriter Defendant about Facebooks
dimming revenue prospects, the fund concluded that the IPO price of $38 per share was
ridiculous, and slashed the number of shares it intended to buy, while [s]ome Capital
Research fund managers didnt buy into the IPO at all.
G. With The Market Unaware Of The Pronounced Deterioration In Facebooks
Revenue, Facebook Increases The Price And Size Of The Offering, And Allocates An
Extremely High Number Of Shares To Small Investors
140.
Given the misleading nature of the new disclosure in Facebooks May 9 amended
Registration Statement, the financial press continued to report only that increasing mobile usage
might impact Facebooks revenue depending on the occurrence of future events. For example,
on the night of May 9, The New York Times reported that:
The company [] warned that if Facebook users continued to gain access to the
social network on mobile devices, instead of computers, and if Facebook was
unable to successfully implement monetization strategies for our mobile users,
the companys revenue growth could be harmed.
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141.
Filed 02/28/13 Page 43 of 95
Similarly, on May 9, The Wall Street Journal reported that the Registration
Statement stated only that increasing mobile usage may negatively impact revenue:
[Facebook] has warned that, as more people use Facebook on mobile phones
rather than personal computers, that trend may negatively affect financial
results. The issues are important as Facebook heads into the final stretch
before its IPO, expected on May 18 in an offering that would value the company
at as much as $96 billion. Executives from the [] Company have been pitching
the companys stock to would-be investors this week in a roadshow, where they
have fielded questions about Facebooks mobile strategy and growth.
142.
Further demonstrating that the market was unaware of the fact that Facebooks
business had been materially impacted by increasing mobile usage, analysts other than the
Syndicate Analysts, who had not been called by Facebook, continued to widely expect Facebook
to report revenues that were in line with the original, higher guidance Facebook had given in
April. As of May 18, 2012, the date that Facebook went public, analysts consensus estimates
according to Thomsons Institutional Brokers Estimate System were for Facebook to report
revenues of more than $1.2 billion for the second quarter and $5 billion for the year exactly in
line with Facebooks original yearly guidance and slightly above its quarterly guidance.
143.
Because the market was unaware of the impact that increasing mobile usage had
already had on Facebooks business, investor demand for Facebook stock far exceeded the
number of shares being offered in the week before the offering was scheduled to occur. On May
11, Reuters reported that Facebook Inc.s record initial public offering is already oversubscribed
days after the worlds largest social network embarked on a cross-country roadshow to drum
up investor enthusiasm. On May 14, Bloomberg reported that demand for Facebook shares was
so intense that the Underwriter Defendants were swamped with orders and were going to close
the order book days before they had planned to:
Facebook plans to stop taking orders tomorrow for its initial public offering, two
days ahead of schedule. The offer of 337.4 million shares at $28 to $35 each
has been oversubscribed. Theyre swamped with the orders that are in, said
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Jon Merriman, chief executive officer at investment firm Merriman Holdings Inc.
in San Francisco. They just need time to determine the price. They can send the
message the books are closing, send in your orders now.
144.
Accordingly, in the week before the IPO, Facebook increased both the price and
size of its IPO. Raising both the price and size of an IPO is exceedingly rare indeed, it has
occurred in only 3.4% of all IPOs since 1995. Demand for Facebook stock was so extreme that,
in the week before the IPO, Facebook was not only able to raise both the price and size of its
IPO, but it was able to increase them by very significant amounts.
145.
Specifically, on May 14, The New York Times reported that Facebook is planning
to increase the price for its hotly awaited initial public offering to a range of $34 to $38 a share
because of rampant investor demand. The next day, May 15, Facebook filed an amended
Registration Statement disclosing that it was indeed increasing the price range from the previous
range of $28 to $35, to a new range of $34 to $38 an increase of more than 21% at the bottom
of the range and nearly 9% at the top. The large size of Facebooks price increase caused the
financial press to uniformly conclude that market demand for the Companys stock had reached
astronomical levels, with the The Associated Press reporting that [d]emand is obscenely high.
146.
Notably, the financial press reported that Facebooks ability to significantly raise
the IPO price demonstrated that the Company had succeeded in convincing investors that [it]
can make money from mobile users. As Bloomberg reported on May 14:
Chief Executive Officer Mark Zuckerberg, in a roadshow pitch to the IPO
investors, may be winning over skeptics who initially balked at buying the shares,
said Erik Gordon, a professor at the University of Michigans Ross School of
Business. Raising the range would be the best signal of what the underwriters
are hearing from their institutional buyers who have seen the roadshow.
Zuckerberg is celebrating his 28th birthday today, during the final leg of a
marketing tour aimed at building demand for the IPO and convincing investors
that Facebook can make money from mobile users.
41
147.
Filed 02/28/13 Page 45 of 95
The next day, May 16, Facebook and its insiders increased the size of the offering
by nearly 25%, raising the number of shares being offered by approximately 84 million shares.
All the additional shares were offered by Facebook insiders, including directors and large, early
shareholders. Director Defendants Breyer and Thiel, and the private equity arm of Defendant
Goldman Sachs, each significantly increased the number of shares they were selling in the
offering. Specifically, as reflected in Facebooks final Prospectus, director Defendant Breyer and
entities affiliated with his private equity fund, Accel Partners, increased the number of shares
they were selling from 38.2 million to 57.7 million, or 51%. Director Defendant Thiel more than
doubled the number of shares his private equity funds were selling in the IPO, increasing it from
7.7 million to 16.8 million, or by approximately 120%. Similarly, the private equity arm of
Defendant Goldman Sachs nearly doubled the number of shares it was selling, increasing it from
13.2 million to 24.3, or by more than 85%.
148.
Then, on May 17, 2012, Reuters reported that the underwriters were releasing
significantly more shares to retail investors than was previously expected. For example, the
brokerage arm of Defendant Morgan Stanley previously set a cap of 500 shares per retail client,
but e-mailed advisers late on Thursday afternoon [May 17] that it had increased the limit to 5,000
shares. Similarly, while Merrill Lynch had sent multiple emails over the last several weeks
warning [brokerage] advisers not to expect to receive many shares for [individual] clients, on
the morning of May 17, Merrill informed advisers that they would get thousands of shares per
retail client.
Reuters quoted a Merrill Lynch retail investment adviser as stating that the
allocation was about four times what he had expected. Its a hell of a lot more than I would
have anticipated. As an analyst from the research firm IPO Boutique confirmed to Reuters on
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May 18, [r]etail got a lot more than I thought they did. [S]ome of the retail clients who
called me today said they were getting 15,000 to 20,000 shares.
H. Facebook Conducts Its Historic IPO
149.
On the afternoon of May 17, Facebooks Registration Statement became effective.
That evening, Defendant Ebersman and representatives from the three lead underwriters,
including Grimes, held a conference call to decide on the price of the IPO. In a highly unusual
move, Morgan Stanleys CEO, James Gorman, participated in the conference call. As Bloomberg
subsequently reported, [t]he involvement of an investment banks CEO in IPO pricing
discussions is unusual, and it reflects the importance that Morgan Stanley (MS) ascribed to its
role as lead underwriter on the largest-ever technology IPO. The participants discussed a price
range of between $36 and $41 per share, and ultimately decided to price the IPO at $38 per share
the very top of the range that Facebook had publicly disclosed. As The New York Times
reported after the IPO occurred, a banker involved in the process said that the $38 figure was
chosen because demand was astronomical.
150.
Later that evening, Facebook announced that it had priced its stock at $38 per
share and conduced one of the largest IPOs in history, selling more than 421 million shares of the
Companys Class A common stock to the public for proceeds of more than $16 billion. The IPO
was extraordinary by any measure. The IPO was by far the largest ever for a technology
company indeed, it was nearly 10 times larger than the second-largest technology IPO,
Googles $1.67 billion offering in 2004. The IPO also gave the Company a market capitalization
of more than $104 billion, the largest ever for a U.S. company at the time it went public, and
larger than the market value of such well-established companies as McDonalds and Citigroup.
In fact, Facebooks $104 billion valuation was almost double the valuation achieved by the
second-largest company to complete an IPO, the $60 billion valuation that United Parcel Service
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Inc. reached when it went public in 1999. The amount of proceeds raised in Facebooks IPO was
the third-largest in U.S. history.
151.
The IPO generated huge amounts of wealth for Facebooks executives and
directors. For example, based on the IPO price, Defendant Zuckerbergs Facebooks holdings
were worth more than $19 billion, and he instantly became the 23rd richest person in the world.
Similarly, Director Defendant Breyer and his private equity fund, Accel, reaped approximately
$2.2 billion in proceeds from the sale of shares in the IPO, and their retained holdings were
worth nearly $5.5 billion based on the IPO price. Director Defendant Thiel and his private
equity funds received proceeds of approximately $640 million from the IPO, and the value of
their retained holdings was more than $1.05 billion. Following the IPO, Director Defendant
Marc Andreesen possessed holdings worth nearly $251 million, while the stock owned by
Defendants Ebersman and Sandberg was worth approximately $91 million and $72 million,
respectively.
152.
With Facebook stock set to begin trading on the NASDAQ the next morning,
Friday, May 18, analysts and the financial press widely expected that the shares would
experience a large pop because demand was so intense, as described above. For example, on
May 15, just after Facebook raised the IPO price, Reuters reported that:
The price increase [to $38] indicates intense market demand, which means
Facebooks shares are likely to see a big pop on their first days of trading on
Nasdaq on Friday, analysts said. Its confounding but the evidence is that if
companies raise the range they will pop more, said Josef Schuster, founder of
Chicago-based financial services firm IPOX Schuster LLC It signals that there
is such strong demand that it will create a momentum for other investors to jump
on.
153.
On May 17, Reuters further reported that analysts expected Facebooks shares to
rise as much as 50% on the first day of trading, and that a driving force of this expected pop was
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frenzied demand from retail investors eager to own a piece of a Company that they knew and
used in their everyday lives:
Frenzied demand, especially from individual investors hoping to buy into an
Internet juggernaut that touches hundreds of millions of people every day, is
expected to drive Facebook well above its initial public offering price of $38 per
share, which was already at the top end of its target of $34 to $38. Analysts were
divided on how high the price might go on the first day of trad[ing], with some
expecting a relatively modest gain of 10 percent to 20 percent while others said
anything short of a 50 percent jump would be disappointing. It will be bananas
tomorrow, said Greencrest Capital analyst Max Wolff. The stock could
initially rise and then it could go parabolic on a wave of retail investor hope.
I. Facebooks Market Debut Fizzles As Morgan Stanley Is Forced To Desperately Prop
Up The Companys Stock Price To Prevent A Broken Issue
154.
On the morning of May 18, Defendant Zuckerberg rang the opening bell on the
NASDAQ, ushering in what was expected to be an historic trading day for the Company and the
U.S. financial markets. While trading in Facebook stock was expected to begin at 11 a.m.
Eastern Standard Time, it was delayed by approximately half an hour.
155.
Prior to the opening of trading, small investors placed a flood of orders to buy
Facebook stock. The Associated Press reported on May 19 that there was a rush from small
investors as trading was set to begin, and Steve Quirk, who oversees trading strategy at [giant
retail broker] TD Ameritrade, said that about 60,000 orders were lined up before Facebook
opened. Within the first 45 minutes of trading, Facebook accounted for a record 24% of all
trades executed by TD Ameritrade, as compared with a norm of between 2% to 5% on the day a
company goes public.
156.
Once trading began at 11:30, Facebook stock was buoyed by the swell of retail
demand and opened at $42.05, an immediate 11% pop from the IPO price. Soon after the initial
pop occurred, however, the price of Facebook began to drop. As was subsequently reported, the
drop occurred when investors who had been informed of Facebooks deteriorating revenue began
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to cash out, selling their shares at $42 in order to capture the quick gain and eliminate their
exposure to a stock that, unbeknownst to the market, had become far less valuable. As The New
York Times reported on May 22:
But Facebook shares quickly began to tumble [after opening at $42]. One
investor, after being briefed on Facebooks revised forecast, unloaded all of its
holdings in the first hour of trading, according to Scott Sweet, the founder of the
IPO boutique, who advises mutual funds, hedge funds and individuals. The
investor sold hundreds of thousands of shares at about $42. They knew the jig
was up, Mr. Sweet said.
157.
Thus, by approximately 11:45 a.m., Facebook stock had dropped close to the IPO
price of $38. Facebook stock was thus swiftly headed below the offering price on the first
trading day, and appeared certain to become a broken issue. To prevent this outcome, the
underwriters were forced to aggressively and immediately prop up the share price by buying
massive amounts of stock. Each time the stock came close to dropping below $38 in the face of
massive selling, the underwriters were forced to defend the IPO price by buying huge blocks
of stock at $38 per share to ensure that the stock price never dipped below that line.
158.
As the lead underwriter for the IPO, Morgan Stanley was responsible for leading
the effort to defend the IPO price by buying tens of millions of Facebook shares in the open
market. The shares that Morgan Stanley purchased were not retained by the underwriters, but
rather were used to cover a short position that had been created when the underwriters sold the
overallotment into the market at the time of the IPO. The underwriters sold the overallotment
into the market at the time of the IPO without having previously purchased those shares from
Facebook, thereby creating a short position equal to the size of the overallotment, which was
approximately 63 million shares. To support Facebooks stock price on May 18, Morgan Stanley
began to cover this short position by buying back as much as 63 million Facebook shares at
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prices of $38 per share or higher. As The Wall Street Journal reported in a May 19, 2012 article
titled Facebooks Launch Sputters Underwriters Forced to Prop Up IPO of Social Network:
The stock had been widely predicted to soar on its first day. Instead, up until the
closing moments of the trading sessions, Facebooks underwriters battled to keep
the stock from slipping below its offering price of $38 per share. Such a stumble
would have been a significant embarrassment, particularly for a prominent new
issue like Facebook, the most heavily traded IPO of all time. Morgan Stanley
was forced to buy Facebook shares as the price slid toward $38 in order to prevent
the price from crossing into negative territory. Morgan Stanley had to dip
into an emergency reserve of around 63 million Facebook shares worth more
than $2.3 billion at the offer price to boost the price and create a floor around
$38 a share. In successful IPOs, the reserve, known as the over-allotment or
green shoe, is used to meet soaring demand but in this case, it was used to prop
up Facebooks ailing share price.
159.
As Morgan Stanley battled to keep Facebooks stock price from dipping below
$38, the trading volume in Facebook shares reached enormous levels on May 18. That day, more
than 573 million shares of Facebook were traded the largest volume in history for a Companys
IPO. For perspective, that is roughly equal to the combined trading volume of 28 of the 30
stocks in the Dow Jones industrial average, The Associated Press reported. Facebook stock
closed essentially flat at $38.23. As The Washington Post reported, [s]hare prices would have
plunged immediately if not for the intervention of Morgan Stanley.
160.
Facebooks debut was officially a disappointment.
Reuters reported that the
Historic Facebook debut falls short of expectations. We have got some unhappy guys out
there, said Wayne Kaufman, chief market strategist at John Thomas Financial, a retail broker on
Wall Street. They were hoping for Facebook to be considerably better. I bet there are a lot of
disappointed people in the market. Similarly, the San Jose Mercury News reported that analysts
had called the trading debut surprising and disappointing.
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J. Facebook Stock Collapses On Monday And Tuesday As The Truth Emerges

161.
After the close of the market on Friday, May 18, and continuing through the next
two trading days, news of the decline in Facebooks expected revenues, including the fact that
the lead underwriters had cut their revenue estimates in advance of the IPO, began to emerge.
Only hours after the close of Facebooks first day of public trading, at approximately 10 p.m. on
Friday, May 18, Reuters reported a piece of stunning news. Specifically, Reuters revealed that
Facebook [] altered its guidance for research earnings last week, during the road show, a rare
and disruptive move. As Reuters further reported, the fact that Facebook cut its guidance
contributed to the stocks rocky first day of trading, and was a reason why Facebooks shares
spent much of the day struggling to stay above the $38 IPO price, and the underwriters had to
absorb mountains of stock to defend the $38 level and keep the market from dipping below it.
162.
Other members of the financial press quickly picked up the Reuters report and
wrote that news of Facebooks lowered guidance significantly altered the mix of information in
the marketplace concerning Facebooks performance and value. For example, at approximately
7:30 a.m. on Saturday, May 19, Business Insider reported that the lowered guidance was highly
material information, and the selective disclosure of that information represented the exact sort
of unfair symmetry that securities laws are designed to prevent:
Earnings guidance is highly material information. Any time any company
gives any sort of forecast, stocks move because the forecast offers a very well
informed view of the future by those who have the most up-to-date information
about a companys business. [I]f Facebook really had reduced guidance
mid-way through a series of meetings designed for the sole purpose of selling the
stock this would have been even more highly material information. [S]uch a late
change in guidance would mean that Facebooks business was deteriorating
rapidly between the start of the roadshow and the middle of the roadshow. Any
time a business outlook deteriorates that rapidly, alarm bells start going off on
Wall Street, and stocks plunge.
[N]ow Reuters has just reported [that] Facebook [] altered its guidance for
research earnings last week, during the roadshow, a rare and disruptive move.
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Hmmm. If this really happened, anyone who placed an order for Facebook who
was unaware that 1) Facebook had issued any sort of earnings guidance, and 2)
reduced that guidance during the roadshow, has every right to be furious.
Because this would have been highly material information that some investors
had and others didnt the exact sort of unfair asymmetry that securities laws are
designed to prevent.
163.
On Monday, May 21, the first trading day after it was revealed that Facebook had
cut its guidance during the roadshow, Facebook shares declined significantly on extremely high
volume. Morgan Stanleys efforts to prop up Facebook stock were overwhelmed by the immense
selling pressure caused by news of Facebooks reduced guidance, and Facebook opened at
$36.53, far below the IPO price, and continued to fall in the opening minutes of trading. As
Reuters reported on May 21, Facebook stock declined so rapidly at the open that it triggered
NASDAQs circuit breakers banning short sales in order to prevent any additional pressure on
the downward spiraling stock:
The drop was so steep that circuit breakers kicked in a few minutes after the open
to restrict short sales in the stock, according to a notice from Nasdaq. Without
that same level of defense [from Morgan Stanley], [Facebook] shares fell $4.50 to
$33.73 in the first 1-1/2 hours of trading. That represented a decline of 11.8
percent from Fridays close and 25 percent from the intra-day high of $45 per
share. Volume was again massive, with more than 96 million shares trading
hands by 11 a.m., making it by far the most active stock on the U.S. market.
164.
Facebook shares closed on May 21 at $34.03, a decline of nearly 11 percent from
the Companys IPO price. Volume for the day was extraordinarily heavy, with more than 168
million shares traded in total. In a single day, this precipitous decline in the value of Facebook
stock wiped out more than $1.6 billion of the Companys market capitalization.
165.
At approximately 1 a.m. on May 22, Reuters issued a report which revealed new
significant facts about Facebooks lowered revenue estimates. Specifically, Reuters reported that
lead underwriters Morgan Stanley, J.P. Morgan, and Goldman Sachs had significantly cut their
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revenue forecasts for Facebook in the middle of the roadshow, but appeared to have told only a
few major clients about this highly negative and shock[ing] development:
In the run-up to Facebooks $16 billion IPO, Morgan Stanley, the lead
underwriter on the deal, unexpectedly delivered some negative news to major
clients: The banks 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
say it may 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 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.
That deceleration freaked a lot of people out, said one of the investors.
166.
Reuters further reported that it was almost unprecedented for a lead underwriter to
significantly cut its revenue estimates in the midst of the roadshow:

This was done during the roadshow Ive never seen that before in 10 years,
said a source at a mutual fund firm who was among those called by Morgan
Stanley. Scott Sweet, senior managing partner at the research firm IPO Boutique,
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.
167.
These material new facts further confirmed the significance of Facebooks
lowered guidance, and immediately swept through the market. Before the market opened on
May 22, Business Insider reported that the news that the lead underwriters analysts had cut their
revenue estimates during the time period when the roadshow was occurring was a bombshell.
As Business Insider explained, Facebooks reduced revenue estimates obviously were material
information, that significantly changed the total mix of information available to investors
considering whether to purchase Facebook stock:
And now comes some news about the Facebook IPO that buyers deserve to be
outraged about. Reuters [] is reporting that Facebooks lead underwriters all
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cut their earnings forecasts for the company in the middle of the IPO roadshow.
This by itself is highly unusual (Ive 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 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. [D]uring the
marketing of the Facebook IPO, investors who did not hear about these
underwriter estimates were placed at a meaningful and unfair information
disadvantage and they suffered for it.
168.
Similarly, within hours of Reuters report, tech news outlet Cnet also reported
that Morgan Stanleys lowered earnings estimates for Facebook came as a huge shock to some,
likely contributing to the lackluster performance of the social-networking giants stock and
sink[ing] the much anticipated offering well before its first trade. During trading on May
22, The Wall Street Journal reported that investors are angry to learn that Facebooks
underwriters lowered their financial forecasts for the company while it was holding IPO
roadshow meetings, and that Facebook shares were slid[ing] sharply as a result of this
revelation. Shortly after the market opened on May 22, Forbes also reported that, Particularly
troubling is if the underwriters only notified select clients of their more cautious outlook on
Facebooks growth, at a time when both the price range and the size of the offering were soon to
be increased, and noted that Facebook stock had fallen more than 6.5% in early trading after
the release of this news.
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Indeed, on May 22, Facebook shares plunged once more. Facebook stock opened
the day down sharply at $32.61, and closed down at $31 per share, a decrease of another 9%, on
extremely high volume of almost 102 million shares traded. The financial press widely reported
that the shocking news of the revenue cuts had caused the nearly unprecedented decline in
Facebook stock between May 21 and 22. For example, as Reuters reported after trading on May
22:
Investors expressed disappointment, skepticism and even shock on Tuesday after
learning that an analyst at lead underwriter Morgan Stanley cut his Facebook
revenue forecasts in the days before the companys initial public offering
information that apparently did not reach small investors before the stock went
public and subsequently tumbled.
170.
In sum, in just two trading days over May 21 and 22, Facebooks second and third
trading days as a public company, its shares had fallen $7 per share or more than 18% from the
IPO price wiping out billions of dollars of Facebooks market capitalization. While the market
had believed less than a week ago that Facebooks IPO would go down as a momentous success,
the IPO was now an historic failure: the collapse in Facebooks stock on May 21 and 22 made
the IPO the single worst performing initial public offering in 10 years, prompting Bloomberg to
call it an epic fail and label it the flop of the decade.
K. The Financial Media Acknowledges That The Declines In Facebooks Revenue
Estimates Were Not Conveyed By Facebooks Public Disclosures, And Significantly
Altered The Total Mix Of Information
171.
Following the disclosure of the declines in Facebooks revenue estimates,
contemporaneous market commentators continued to widely report that this highly material
information was not disclosed in Facebooks Registration Statement, and that its belated
disclosure significantly altered the total mix of information in the marketplace. For example, on
May 23, 2012, Venture Beat reported that the Companys revenue cuts were material
information and that the disclosures in the Registration Statement were woefully short on hard
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data, causing institutional and retail investors [to] take the hit as Facebooks stock value
tanked when news about these facts emerged after the IPO.
172.
Venture Beat also quoted the CEO of research firm PrivCo, who concluded that
the revisions to Facebooks earnings estimates were enormously material changes that
absolutely should have been disclosed in the Registration Statement because they
dramatically change the valuation of the company. As this analyst stated:
The reduction to Facebooks forecasts of this magnitude reducing the revenue
growth rate by over 6 percentage points is so material that it should absolutely
have been disclosed in a revised S-1 filing before the IPO pricing, [the analyst]
said. The combined net effect for Facebook in this case of both the reduction in
the financials and the valuation multiple would have lowered Facebooks
valuation by at least one third.
173.
Similarly, Business Insider reported on May 24 that the purported disclosures in
the Registration Statement did not disclose highly material information:

Every investor on the planet deserved to know about Facebooks sudden business
slowdown. And the fact that only a select group of institutional investors heard
about itverballyis outrageous. This was selective disclosure of critical
non-public information. Facebooks amended prospectus did not say that the
companys business had suddenly weakened and managements outlook had
changed. And that information is vastly more important than what the prospectus
did say, which was that users are growing faster than revenue.
174.
On May 25, Venture Beat reported that the purported warnings in the Registration
Statement had failed to disclose critical facts that dramatically altered the information that had
been provided to investors:
In that May 9 update, Ebersman decided to use vague language when describing
how the companys second quarter was looking. It was extremely understated,
considering what we would later find out. According to the filing, Facebook
said that it was experiencing the same trend in the second quarter that it had seen
in the first quarter, that growth in daily active users (DAUs) was increasing
more rapidly than the growth in ad impressions, driven by many users shift to
mobile devices.
Now Facebook is generally growing quickly and its ads are growing, even if
they are growing more slowly on mobile and so this update itself didnt send
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any alarm bells to most investors, and it shouldnt have. After all, Facebook had
long warned about this mobile problem, ever since the first IPO prospectus filing
on Feb 1, that revenues could be negatively affected by its huge mobile growth,
because monetizing mobile hadnt been proven.
Facebooks lawyers may, in the wake of the legal mess it has gotten into, try to
argue that the new May 9 language about DAUs increasing more rapidly than
the increase in number of ads delivered pointed to something more significant
than what Facebook had released before. But the reality is that this wording was
just too vague to be construed by normal people as meaning anything more than
what had already been mentioned before. The fact is, there is nothing within
the S-1 update on May 9 that would give normal investors the sense that there had
been a material change about Facebooks revenue prospects.
175.
As the press also widely reported, Facebooks IPO had conclusively demonstrated
that the market was unaware of the highly material information that Facebook had selectively
disclosed, and the market had suffered badly because of it. As The Associated Press reported on
May 24:
Wall Street appears bent on convincing Main Street that the game is rigged.
Investor anger is mounting over the initial public offering of Facebook stock last
week. Judson Gee, a financial advisor, placed a call on Wednesday morning
[May 23] to a client who had plowed $50,000 into Facebook stock on Friday, the
day of the IPO. Gee said he called to tell the client, a restaurateur, about reports
that Morgan Stanley had told only select customers about an analysts reduction
of revenue estimates for Facebook just before the IPO. I could see his jaw
dropping on the other side, Gee said. A lot of expletives came out. He said
his client had asked How can they give that information to the big boys and not
give it to the public?
V.
THE NEGATIVE CHANGE IN FACEBOOKS REVENUE ESTIMATES

SIGNIFICANTLY ALTERED THE TOTAL MIX OF INFORMATION IN THE
MARKETPLACE
176.
The following facts establish that the decline in Facebooks estimated revenue
was highly material and significantly altered the total mix of information in the marketplace
before Facebooks IPO.
177.
First, Facebooks own actions confirm that the declines in the Companys
estimated revenues were highly material and significantly altered the total mix of information in
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the market. As set forth above at paragraphs 125-134, immediately after Facebook filed its
amended Registration Statement on May 9, 2012, Facebooks Treasurer made nineteen separate
phone calls over the course of three days to the Syndicate Analysts, precisely to inform them of
the material information that was omitted from the Registration Statement: namely, that the
Companys business had been materially impacted by the shift to mobile devices and, as a result,
Facebook had significantly reduced its revenue estimates for the second quarter and the year.
Had this information been immaterial, or part of the total mix of information in the market,
Facebook obviously would not have felt the need to make these nineteen separate phone calls to
the Syndicate Analysts.
178.
Second, the actions of the lead underwriters confirm that the declines in
Facebooks estimated revenues were material and significantly altered the total mix of
information in the market. As set forth above at paragraphs 125-134, immediately after being
informed of Facebooks lowered guidance, the lead underwriters determined that the change in
Facebooks financial condition was so significant that it had to be disclosed to the Syndicate
Analysts. Precisely because the amended Registration Statement filed on May 9 did not disclose
or otherwise convey the fact that Facebooks business had been materially impaired, lead
underwriter Morgan Stanley drafted a detailed script disclosing the declines in Facebooks
estimated revenues, which Facebook read from when it provided this new information to the
Syndicate Analysts during the 19 separate phone calls that Facebook conducted after filing its
amended Registration Statement. If the information about the declines in Facebooks estimated
revenues was immaterial, or had otherwise been conveyed by the amended Registration
Statement, Morgan Stanley would not have determined that Facebook needed to provide this
information separately to the Syndicate Analysts.
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179.
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Third, the actions of the Syndicate Analysts upon being informed of Facebooks
lowered guidance confirm that this information was highly material and significantly altered the
total mix of information in the market. As set forth above in paragraphs 135-137, immediately
after learning of Facebooks lower revenue estimates, the Syndicate Analysts significantly
reduced their own estimates of Facebooks revenue to reflect the impact of the new information.
The Syndicate Analysts then held a series of calls with a select group of the Companys potential
investors and informed them of their lowered estimates. If the new information concerning
Facebooks revenue declines was unimportant or already part of the total mix of information in
the market, the Syndicate Analysts would not have significantly lowered their revenue estimates
based on that information, and would not have felt the need to hold a series of calls with a select
group of Facebooks potential investors specifically to inform them of this development.
180.
Fourth, the reactions of the select investors who were informed of the reductions
in the Syndicate Analysts estimates confirm that the decline in Facebooks revenue was highly
material, and significantly altered the total mix of information in the market. As set forth above
at paragraphs 138-139, the financial press reported that the lowered revenue figures were a big
shock to those investors who received them, raised a significant red flag about Facebooks
financial condition, and the deceleration [showed by the lower revenue figures] freaked a lot of
people out. Many investors who were informed of the lowered revenue estimates cancelled or
reduced their orders, or reduced the price they were willing to pay for Facebook stock.
181.
Fifth, the contemporaneous reaction of the financial media following the public
disclosure of the decline in Facebooks revenue estimates confirms that this information was
highly material, and significantly altered the total mix of information. Significantly, as set forth
above at paragraphs 162, 167, 171-174, the financial media specifically reported that the change
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in Facebooks revenue estimates was neither disclosed nor conveyed by Facebooks Registration
Statement, and that such information significantly altered the total mix of information in the
market. For example, Business Insider reported that Facebooks amended prospectus did not
say that the companys business had suddenly weakened and managements outlook had
changed. And that information is vastly more important than what the prospectus did say, which
was that users are growing faster than revenue. Similarly, Venture Beat reported that the
disclosures in Facebooks May 9 amended Registration Statement were extremely understated,
vague, and failed to disclose highly material information. As Venture Beat explained, the May
9 Registration Statement merely stated that the growth in daily active users [] was increasing
more rapidly than the growth in ad impressions, driven by many users shift to mobile devices.
Because this disclosure represented that Facebooks ads are growing, even if they are growing
more slowly on mobile this update itself didnt send any alarm bells to most investors, and it
shouldnt have. [T]he reality is that this wording was just too vague to be construed by normal
people as meaning anything more than what had already been mentioned before. The fact is,
there is nothing within the S-1 update on May 9 that would give normal investors the sense that
there had been a material change about Facebooks revenue prospects.
182.
Sixth, the reaction of the market after Facebook filed the May 9 amended
Registration Statement confirms that it did not put the market on notice of the fact that
Facebooks business had been materially impaired. As set forth above at paragraph 142, after
Facebook filed its amended Registration Statement on May 9, the analysts who had not been told
of the decline in Facebooks estimated revenues continued to widely expect Facebook to report
revenues that were in-line with Facebooks original estimates from April. Indeed, as of May 18,
the date that Facebook went public, analysts consensus estimates according to Thomsons
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Institutional Brokers Estimate System were for Facebook to report revenues of more than $1.2
billion for the second quarter and $5 billion for the year exactly in line with Facebooks
original guidance. Had the May 9 amended Registration Statement conveyed to the market the
fact that increasing mobile usage and Facebooks product decisions had materially impaired the
Companys business, these analysts would not have continued to expect Facebook to report
revenues that were in line with its original guidance.
183.
Seventh, the reaction of investors following the filing of the amended Registration
Statement on May 9 confirms that the amended Registration Statement did not put investors on
notice of the fact that Facebooks business had been materially impaired. As noted above at
paragraphs 143-147, in the week before the IPO, investor demand for Facebook shares spiked to
astronomical and rampant levels because Facebook had succeeded in convincing investors
that Facebook can make money from mobile users. Because of this extraordinary surge in
investor demand, on May 15 and 16 nearly a week after Facebook filed its amended
Registration Statement Facebook significantly increased both the size of the IPO and the price
of its shares something that has been done in only 3.4% of all IPOs since 1995. Had investors
been on notice of the pronounced decline in Facebooks revenues prior to the IPO, investor
demand for Facebook shares would not have risen to astronomical levels, and Facebook would
not have been able to take the extremely rare step of significantly increasing both the size of the
IPO and its price days before the offering occurred.
184.
Eighth, the reaction of the market when the news of Facebooks revenue declines
was publicly revealed establishes that this information was highly material, and significantly
altered the total mix of information that previously existed in the market. As set forth above at
paragraphs 161-170, when news of Facebooks and the Syndicate Analysts reduced estimates
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was disclosed to the market, investors reacted with shock and anger, and Facebook stock fell
precipitously, declining nearly 11% on May 21, and approximately 9% on May 22, on extremely
high trading volume both days. This two-day decline destroyed billions of dollars of Facebooks
market capitalization. The financial press specifically attributed these declines to the disclosure
of Facebooks and the Syndicate Analysts reduced estimates, stating that these revelations
caused Facebook shares to slide sharply on May 21 and 22. If the information concerning
Facebooks revenue declines had been immaterial or otherwise part of the total mix of
information in the market, Facebooks stock price would not have collapsed when this
information was revealed.
185.
Ninth, Facebooks own disclosures establish the importance of Facebooks
undisclosed revenue declines to the market.
As noted above at paragraphs 89-97, the
Registration Statement repeatedly highlighted that Facebooks revenue and advertising revenue
were Facebooks most significant financial metrics. Similarly, the declines in these key metrics
were driven by a factor increasing mobile usage that the Registration Statement identified as
critical to Facebooks business. Moreover, Facebook itself recognized that any decline in its
future revenues impacted the value of its stock, stating in the Registration Statement that its
business prospects were a factor[] [it] considered in determining the initial public offering
price. Accordingly, the disclosures in the Registration Statement demonstrate that the reduction
in Facebooks estimated revenues was highly material to investors considering whether to
purchase Facebook stock.
VI.
MATERIALLY UNTRUE AND MISLEADING STATEMENTS AND OMISSIONS

186.
Facebook filed its initial Registration Statement and Prospectus with the SEC on
Form S-1 on February 1, 2012. Facebook amended the Registration Statement and Prospectus
eight subsequent times, filing the final amended Registration Statement on May 16, 2012.
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Among other things, the Registration Statement described Facebooks business, set forth its
financial results, and provided the terms of the IPO.
187.
On May 17, 2012, the Registration Statement became effective.
That day,
Facebook and its selling stockholders sold more than 421 million shares of Class A common
stock to the public in the Companys IPO, at $38 per share. Through the IPO, Facebook and its
selling stockholders received proceeds of more than $16 billion. Facebook stock began trading
on the NASDAQ on May 18, 2012.
188.
As set forth in detail below, the Registration Statement pursuant to which
Facebooks common stock was issued was materially untrue and misleading for several reasons:
a. First, the Registration Statement contained a series of statements in which
Facebook purported to warn investors only that increasing mobile usage
may negatively affect its revenues. These statements were materially untrue
and misleading because Facebook had already determined that increasing
mobile usage had negatively affected its revenues to a material degree.
b. Second, the Registration Statement contained a series of statements in which
Facebook purported to warn investors only that its product decisions may
negatively affect its revenues. These statements were materially untrue and
misleading because Facebook had already determined that its product
decisions had negatively affected its revenues to a material degree.
c. Third, the Registration Statement failed to disclose the information required
by Item 303 of Regulation S-K, which required Facebook to disclose that
increasing mobile usage and the Companys product decisions had had a
material negative impact on its revenues, and the magnitude of that impact.
d. Fourth, the Registration Statement failed to disclose the information required
by Rule 408 of SEC Regulation C, which also required Facebook to disclose
that increasing mobile usage and the Companys product decisions had had a
material negative impact on its revenues, and that Facebook had already
significantly lowered its estimated revenues as a result.
e. Finally, in addition to the failure to report known facts concerning the
significant negative effects on Facebooks revenues from increasing mobile
usage and the Companys product decisions, the Company also failed to
disclose that it was going to disseminate this revised financial information to
the Syndicate Analysts only.
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189.
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In a section of the Registration Statement and Prospectus called Risk Factors,
Facebook purported to warn investors that:

Growth in use of Facebook through mobile products, where our ability to
monetize is unproven, as a substitute for use on personal computers may
negatively affect our revenue and financial results.
We had 488 million MAUs [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 increased 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
strategies for our mobile users, or if we incur excessive expenses in this effort,
our financial performance and ability to grow revenue would be negatively
affected.
190.
This statement was materially untrue and misleading.
It was misleading to
represent that increasing mobile usage might negatively impact Facebooks revenue when
Facebook had already determined that increasing mobile usage had negatively affect[ed] its
revenue and financial results. Indeed, prior to the IPO, Facebook had already determined that,
as a direct result of increasing mobile usage, the Companys estimated revenues for the second
quarter of 2012 had declined by as much as 8.33%, and its estimated annual revenues had
declined by as much as 3.5%. As set forth above at paragraphs 176-185, these declines in
Facebooks expected revenues for the second quarter of 2012 and the year were highly material
and significantly altered the total mix of information in the market.
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191.
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In the Risk Factors section of the Registration Statement and Prospectus,
Facebook also purported to warn investors that:

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.
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 with us will generate a competitive return relative to
other alternatives. Our advertising revenue could be adversely affected by a
number of other factors, including:
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;
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.
192.
represent that increasing mobile usage and the Companys product decisions might negatively
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impact revenue when Facebook had already determined that these factors had adversely
affected its advertising revenues. Indeed, prior to the IPO, Facebook had already determined
that, as a direct result of these factors, the Companys estimated revenues for the second quarter
of 2012 had declined by as much as 8.33%, and its estimated annual revenues had declined by as
much as 3.5%. As set forth above at paragraphs 176-185, these declines in Facebooks expected
revenues for the second quarter of 2012 and the year were highly material and significantly
altered the total mix of information in the market.
193.
In the disclosure in the Companys amended Registration Statement and
Prospectus filed on May 9 one day after the Company revised its expected revenues for the
second quarter and year sharply downward due to the negative impact of increasing mobile usage
and the Companys product decisions Facebook continued to emphasize that any potentially
negative impact of these factors was uncertain. Specifically, this disclosure stated that:
Based on our experience in the second quarter of 2012 to date, the trend we saw
in the first quarter of DAUs [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 began showing an immaterial number of sponsored stories in News
Feed, and in part due to certain pages having fewer ads per page as a result of
product decisions. For additional information on factors that may affect these
matters, see Risk FactorsGrowth 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 and financial results and
Risk FactorsOur culture emphasizes rapid innovation and prioritizes user
engagement over short-term financial results.
194.
represent that increasing mobile usage and the Companys product decisions might negatively
impact its revenue when Facebook had already determined that these factors had negatively
affect[ed] its revenue and financial results. Indeed, prior to the IPO, Facebook had already
determined that, as a direct result of these factors, the Companys estimated revenues for the
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second quarter of 2012 had declined by as much as 8.33%, and its estimated annual revenues had
declined by as much as 3.5%. As set forth above at paragraphs 176-185, these declines in
Facebooks expected revenues for the second quarter of 2012 and the year were highly material
and significantly altered the total mix of information in the market.
195.
Similarly, in the Risk Factors section of the Registration Statement and
Prospectus, Facebook also purported to warn investors that its product decisions might
negatively impact its revenue, stating:
[W]e frequently make product decisions that may reduce our short-term
revenue or profitability if we believe that the decisions are consistent with our
mission and benefit the aggregate user experience and will thereby improve our
financial performance over the long term. As an example, we believe that the
recent trend of our DAUs increasing more rapidly than the increase in the
number of ads delivered has been due in part to certain pages having fewer ads
per page as a result of these kinds of product decisions. These decisions may
not produce the long-term benefits that we expect, in which case our user
growth and engagement, our relationships with developers and advertisers, and
our business and results of operations could be harmed.
196.
For the reasons set forth above at paragraph 194, this statement was materially
untrue and misleading. In particular, it was materially misleading to state that the Companys
product decisions may reduce its revenue when Facebook had already determined that its
product decisions had reduced its advertising revenues.
197.
The Registration Statement and Prospectus was also materially untrue and
misleading because it failed to disclose the information required by Item 303 of Regulation S-K.
Item 303 requires the disclosure of all known trends that have had or that the registrant
reasonably expects will have a material unfavorable impact on revenues. In addition to
the identification of such known trends, Item 303 specifically requires disclosure of (i) whether
those trends have had or are reasonably expected to have a material negative impact on revenue;
and (ii) the extent of any such impact on revenue.
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198.
Filed 02/28/13 Page 68 of 95
Accordingly, as the SEC has repeatedly emphasized, the specific provisions in
Item 303 [set forth above] require disclosure of forward-looking information. Indeed, the SEC
has stated that Item 303 is intended to give the investor an opportunity to look at the company
through the eyes of management by providing both a short and long-term analysis of the business
of the company with particular emphasis on the registrants prospects for the future. See
Managements Discussion and Analysis of Financial Condition and Results of Operation,
Securities Act Release No. 6835, 1989 WL 1092885, at *3 (May 18, 1989). Thus, materialforward looking information regarding known material trends and uncertainties is required to be
disclosed as part of the required discussion of those matters and the analysis of their effects.
See Commission Guidance Regarding Managements Discussion and Analysis of Financial
Condition and Results of Operation, Securities Act Release No. 8350, 2003 WL 22996757, at
*11 (December 29, 2003).
199.
Disclosure of forward-looking information concerning the registrants revenue is
required by Item 303 where a trend, demand, commitment, event or uncertainty is both [i]
presently known to management and [ii] reasonably likely to have material effects on the
registrants financial condition or results of operations. See Managements Discussion and
Analysis of Financial Condition and Results of Operation, Securities Act Release No. 6835, 1989
WL 1092885, at *4 (May 18, 1989).
200.
As set forth in detail above, both of these conditions were satisfied here. First, as
set forth above at paragraphs 122-134, the two trends that were negatively impacting Facebooks
revenue namely, increasing mobile usage and the Companys product decisions were widely
known to Facebooks management prior to the IPO. Second, the facts set forth above establish
that these two trends were reasonably likely to have material effects on [Facebooks] financial
65
Filed 02/28/13 Page 69 of 95
condition or results of operations. Specifically, as set forth above at paragraphs 122-134, as a

direct result of the impact of these two trends, Facebook reduced its revenue estimates for the
second quarter and the year by material amounts, and immediately provided its lowered guidance
to the Syndicate Analysts so that they could inform a select group of Facebooks potential
investors of this highly significant development.
201.
Accordingly, pursuant to Item 303, Defendants were required to disclose: (i)
whether increasing mobile usage and the Companys product decisions had or were reasonably
expected to have a material unfavorable impact on revenues, and (ii) to what extent
those trends had impacted or were reasonably expected to impact Facebooks revenue.
Nevertheless, Defendants failed to disclose any of this information in the Registration Statement
and Prospectus. Specifically, in violation of Item 303, the Registration Statement and Prospectus
failed to disclose that: (i) the known trends of increasing mobile usage and the Companys
product decisions had had a material negative impact Facebooks revenue for the second quarter
and the year; (ii) as a result of these trends, Facebook had decreased its expected revenue for the
second quarter of 2012 by as much as 8.33%, lowering it from as much as $1.2 billion to as little
as $1.1 billion; and (iii) as a result of these trends, Facebook had decreased its expected revenue
for the year by as much as 3.5%, lowering it from $5 billion to as little as $4.825 billion.
202.
Finally, the Registration Statement and Prospectus were also materially false and
misleading because they failed to disclose the information required by Rule 408 of SEC
Regulation C. Rule 408 requires that, [i]n addition to the information expressly required to be
included in a registration statement, there shall be added such further material information, if
any, as may be necessary to make the required statements, in light of the circumstances under
which they are made, not misleading. 17 C.F.R. 230.408(a). The Registration Statement and
66
Filed 02/28/13 Page 70 of 95
Prospectus in their entirety, and as set forth specifically above, were materially untrue and
misleading and omitted to state material information necessary to make them not misleading, in
violation of Facebooks duty of disclosure under Rule 408. The Registration Statement and
Prospectus specifically failed to disclose: (i) that growing mobile usage and Facebooks product
decisions had already had a material unfavorable impact on the Companys revenues; and (ii)
that Facebook had significantly lowered its estimated revenues as a direct result of that impact.
VII.
CLASS ACTION ALLEGATIONS

203.
Lead Plaintiffs bring this action on behalf of themselves and as a class action
pursuant to Rules 23(a) and 23(b)(3) of the Federal Rules of Civil Procedure on behalf of a Class
consisting of all persons and entities who purchased or otherwise acquired the Class A common
stock of Facebook in or traceable to Facebooks IPO, and were damaged thereby. Excluded from
the Class are Defendants (as set forth herein), and present or former executive officers of
Facebook and their immediate family members (as defined in 17 C.F.R. 229.404, Instructions
(1)(a)(iii) and (1)(b)(ii)).
204.
The members of the Class are so numerous that joinder of all members is
impracticable. For example, Facebook issued 421,233,615 shares of Class A common stock in
its IPO, with an underwriter option to issue an additional 63,185,042 shares of Class A common
stock. After the IPO, Facebook stock actively traded on the NASDAQ. While the exact number
of Class members is unknown to Lead Plaintiffs at this time, Lead Plaintiffs believe that Class
members number in the thousands, if not millions.
205.
Lead Plaintiffs claims are typical of the claims of the members of the Class.
Lead Plaintiffs and the other members of the Class purchased or otherwise acquired Facebook
Class A common stock in the IPO and sustained damages as a result of Defendants conduct
complained of herein.
67
206.
Filed 02/28/13 Page 71 of 95
Lead Plaintiffs will fairly and adequately protect the interests of the members of
the Class and have retained counsel competent and experienced in class and securities litigation.
Lead Plaintiffs have no interests that are adverse or antagonistic to the Class.
207.
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:
208.
a.
whether Defendants violated the Securities Act as alleged herein;
b.
whether the Registration Statement and Prospectus contained

materially untrue statements or failed to disclose material facts;
and
c.
the extent of damages sustained by the Class, and the proper

measure of damages.
A class action is superior to other available methods for the fair and efficient
adjudication of this controversy. Because the damages suffered by individual members of the
Class may be relatively small, the expense and burden of individual litigation make it
impracticable for Class members individually to seek redress for the wrongful conduct alleged
herein. There will be no difficulty in managing this action as a class action.
209.
The names and addresses of those persons and entities that purchased or otherwise
acquired Facebooks Class A common stock in or traceable to the IPO are available from the
Companys transfer agent(s) or other sources. Notice may be provided to such class members
via first-class mail using techniques and a form of notice similar to those customarily used in
securities class actions.
68
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VIII. THE INAPPLICABILITY OF THE STATUTORY SAFE HARBOR AND

BESPEAKS CAUTION DOCTRINE
210.
The statutory safe harbor and/or bespeaks caution doctrine applicable to forward-
looking statements under certain circumstances do not apply to any of the untrue and misleading
statements pleaded in this Complaint.
211.
First, Section 27(A) of the Securities Act provides that the statutory safe harbor
shall not apply to a forward-looking statement that is made in connection with an initial
public offering. 15 U.S.C. 77z-2(b)(2)(D).
212.
Second, none of the misstatements complained of herein were forward-looking
statements. Rather, they were misstatements concerning current facts and conditions existing at
the time the statements were made. Specifically, as set forth above at paragraphs 189-196,
Facebooks Registration Statement and Prospectus misleadingly stated that increasing mobile
usage and the Companys product decision might negatively impact Facebooks revenue when
Facebook had already determined before the IPO that these factors had negatively impacted its
estimated revenues for the second quarter of 2012 and the year. Accordingly, the materially
untrue statements and omissions complained of herein concerned the then-existing fact that, as of
the time of the IPO, growing mobile usage and the Companys product decisions had had a
material negative impact on Facebooks business.
213.
Third, those statements were not accompanied by meaningful cautionary language
identifying important facts that could cause actual results to differ materially from those in the
statements. As set forth above in detail, then-existing facts contradicted Defendants statements
regarding the impact of mobile usage and the Companys product decisions on its revenue.
Given the then-existing facts contradicting Defendants statements, the generalized risk
69
Filed 02/28/13 Page 73 of 95
disclosures made by Defendants were not sufficient to insulate Defendants from liability for their
materially untrue and misleading statements.
IX.
CAUSES OF ACTION
COUNT I
For Violations Of Section 11 Of The Securities Act

(Against Defendants Zuckerberg, Ebersman, Spillane, The Facebook Board, And The
Underwriter Defendants)
214.
This claim does not sound in fraud. For the purposes of this Section 11 claim,
Lead Plaintiffs do not allege that any Defendant acted with scienter or fraudulent intent, which
are not elements of a claim under Section 11 of the Securities Act. This claim is based solely on
strict liability as to Facebook, and negligence as to the remaining Defendants.
215.
Lead Plaintiffs repeat and reallege the allegations above as if fully set forth
216.
This claim is brought against the Defendants Zuckerberg, Ebersman, Spillane, the
herein.
Facebook Board, and the Underwriter Defendants pursuant to Section 11 of the Securities Act,
15 U.S.C. 77k, on behalf of all proposed Class members who purchased or otherwise acquired
Facebooks Class A common stock in or traceable to the IPO, and were damaged thereby.
217.
At the time of the IPO, the Registration Statement, including the Prospectus,
contained untrue statements of material fact, omitted to state facts necessary to make the
statements made therein not misleading, and failed to disclose required material information, as
set forth above at paragraphs 188-202.
218.
Facebook is the issuer of the Class A common stock sold pursuant to the
Registration Statement. As the issuer of the stock, Facebook is strictly liable to the members of
the Class who purchased Class A common stock in or traceable to the IPO for the materially
70
Filed 02/28/13 Page 74 of 95
untrue statements and omissions that appeared in or were omitted from the Registration
Statement.
219.
Defendant Zuckerberg and the Facebook Board were signatories of the untrue and
misleading Registration Statement, and were directors of Facebook at the time of the IPO.
220.
Defendants Ebersman and Spillane were signatories of the untrue and misleading
Registration Statement.
221.
Each of Defendants Zuckerberg, Ebersman, Spillane and the Facebook Board is
unable to establish an affirmative defense based on a reasonable and diligent investigation of the
statements contained in the Registration Statement. These Defendants did not make a reasonable
investigation or possess reasonable grounds to believe that the statements contained in the
Registration Statement were true and not misleading, and that there were no omissions of any
material fact. Accordingly, these Defendants acted negligently, and are liable to the members of
the Class who purchased or otherwise acquired the Class A common stock in or traceable to the
IPO.
222.
The Underwriter Defendants were underwriters of the IPO.
223.
Each of the Underwriter Defendants is unable to establish an affirmative defense
based on a reasonable and diligent investigation of the statements contained in the Registration
Statement. The Underwriter Defendants did not make a reasonable investigation or possess
reasonable grounds to believe that the statements contained in the Registration Statement were
true and not misleading, and that there were no omissions of any material fact. Accordingly, the
Underwriter Defendants acted negligently, and are liable to the members of the Class who
purchased or otherwise acquired the Class A common stock in or traceable to the IPO.
71
224.
Filed 02/28/13 Page 75 of 95
Lead Plaintiffs and other members of the Class purchased Class A common stock
issued under or traceable to the Registration Statement.

225.
Lead Plaintiffs and other members of the Class did not know, or in the exercise of
reasonable diligence could not have known, of the inaccurate statements and omissions
contained therein when they purchased or otherwise acquired the Class A common stock of
Facebook.
226.
Lead Plaintiffs and the other members of the Class who purchased the Class A
common stock pursuant to the Registration Statement suffered substantial damages as a result of
the untrue statements and omissions of material facts in the Registration Statement, as they either
sold these shares at prices below the IPO price of $38 per share or still held shares as of the date
of the initial complaint containing claims under the Securities Act, May 22, 2012, when the
closing price of the common stock was $31 per share, which was below the IPO price of $38 per
share.
227.
This claim is brought within the applicable statute of limitations.
228.
By reason of the foregoing, the Defendants named in this Count have violated
Section 11 of the Securities Act.

COUNT II
For Violations Of Section 12(a)(2) Of The Securities Act
(Against Facebook, Defendants Zuckerberg, Sandberg, and Ebersman,
and The Underwriter Defendants)
229.
This claim does not sound in fraud. For the purposes of this Section 12(a)(2)
claim, Lead Plaintiffs do not allege that any Defendant acted with scienter or fraudulent intent,
which are not elements of a claim under Section 12(a)(2) of the Securities Act. This claim is
based solely on negligence.
72
Filed 02/28/13 Page 76 of 95
230.
Lead Plaintiffs repeat and reallege the allegations above as if fully set forth
231.
This claim is brought pursuant to Section 12(a)(2) of the Securities Act, 15 U.S.C.
herein.
77l(a)(2), on behalf of all members of the Class who purchased Facebook Class A common
stock in the IPO, against Defendants Facebook, Zuckerberg, Sandberg, Ebersman, and the
Underwriter Defendants.
232.
Each Defendant named in this Count was a seller, offeror, and/or solicitor of sales
of the common stock offered pursuant to the Registration Statement and Prospectus.
233.
Facebook was the issuer of 180,000,000 shares in the IPO for which it received
approximately $6.8 billion in proceeds. Facebook solicited the purchase of shares by virtue of
issuing the Registration Statement, Prospectus, and roadshow video, and was motived at least in
part to serve its own financial interests.
234.
Defendant Zuckerberg sold 30.2 million shares in the IPO for proceeds of
approximately $1.15 billion. Zuckerberg also solicited the purchase of shares by virtue of
signing the Registration Statement containing the Prospectus, participating extensively in the
roadshow video, and making presentations and answering investor questions at Facebooks
roadshow meetings. In making these solicitations, Zuckerberg was motivated in part to serve
Facebooks financial interests and his own. In addition to receiving $1.15 billion in proceeds
from the IPO, the value of Zuckerbergs retained shares was approximately $19 billion based on
the IPO price.
235.
Defendant Sandberg solicited the purchase of shares by virtue of participating
extensively in the roadshow video, including making statements about Facebooks business and
growth prospects, and making presentations and answering investor questions at Facebooks
73
Filed 02/28/13 Page 77 of 95
roadshow meetings. Defendant Sandberg was motivated in part to serve Facebooks financial
interest and her own. The value of Sandbergs Facebook shares was more than $72 million based
on Facebooks IPO price.
236.
Defendant Ebersman solicited the purchase of shares by virtue of signing the
Registration Statement containing the Prospectus, participating extensively in the roadshow

video, including making statements about Facebooks business, and making presentations and
answering investor questions at Facebooks roadshow meetings.
Defendant Ebersman was
motivated in part to serve Facebooks financial interest and his own. The value of Ebersmans
Facebook shares was more than $91 million based on Facebooks IPO price.
237.
The Underwriter Defendants transferred title to Facebook stock to Lead Plaintiffs
and other members of the Class who purchased shares in the IPO, and transferred title of
Facebook stock to other underwriters and/or broker-dealers that sold those securities as agents
for the Underwriter Defendants. The Underwriter Defendants also solicited the purchase of
Facebook stock in the IPO by the Lead Plaintiffs and other members of the Class who purchased
in the IPO by means of the Registration Statement and Prospectus, motivated at least in part by
the desire to serve the Underwriter Defendants own financial interest and the interests of
Facebook, including but not limited to earning commissions on the sale of Facebook stock in the
IPO.
238.
The Registration Statement and Prospectus contained untrue statements of
material fact or omitted to state material facts necessary in order to make the statements, in light
of the circumstances under which they were made, not misleading, as set forth more fully above.
239.
Lead Plaintiffs and other members of the Class who purchased Facebook common
stock in the IPO made such purchases pursuant to the materially untrue and misleading
74
Filed 02/28/13 Page 78 of 95
Registration Statement and Prospectus, and did not know, or in the exercise of reasonable
diligence could not have known, of the untruths and omissions contained therein.
240.
Lead Plaintiffs and the other members of the Class who purchased the common
stock in the IPO pursuant to the Registration Statement and Prospectus suffered substantial
damages as a result of the untrue statements and omissions of material facts in the Registration
Statement and Prospectus, as they either sold these shares at prices below the IPO price of $38
per share or still held shares as of the date of the initial complaint containing claims under the
Securities Act, when the price of the common stock was below the IPO price of $38 per share.
241.
Members of the Class who purchased the common stock pursuant to the
Registration Statement and Prospectus and still hold that stock have sustained substantial
damages as a result of the untrue statements of material facts and omissions contained therein,
for which they hereby elect to rescind and tender their common stock to the Defendants sued in
this Count in return for the consideration paid with interest. Those members of the Class who
have already sold their stock acquired in the IPO pursuant to the materially untrue and
misleading Registration Statement and Prospectus are entitled to damages from Defendants.
242.
This claim is brought within the applicable statute of limitations.
243.
By virtue of the foregoing, the Defendants named in this count violated Section
12(a)(2) of the Securities Act.

COUNT III
For Violations Of Section 15 Of The Securities Act
(Against the Individual Defendants)
244.
This claim does not sound in fraud. For the purposes of this Section 15 claim,
Lead Plaintiffs do not allege that any Defendant acted with scienter or fraudulent intent, which
75
Filed 02/28/13 Page 79 of 95
are not elements of a claim under Section 15 of the Securities Act. This claim is based solely on
negligence
245.
This Count is asserted against the Individual Defendants for violations of Section
15 of the Securities Act, 15 U.S.C. 77o, on behalf of all members of the Class who purchased
or otherwise acquired the Class A common stock issued pursuant to the Registration Statement.
246.
At all relevant times, these Defendants were controlling persons of the Company
within the meaning of Section 15 of the Securities Act. Defendant Zuckerberg, at the time of the
filing of the Registration Statement and the IPO, served as Chairman of the Board of Directors
and Chief Executive Officer. At all relevant times, Defendant Zuckerberg retained a controlling
interest in Facebook and, following the IPO, controlled approximately 56% of the voting power
of the Companys capital stock. Defendant Sandberg was COO of Facebook at the time of the
filing of the Registration Statement and the IPO. Defendant Ebersman was CFO at the time of
the filing of the Registration Statement and the IPO. Defendant Spillane was Facebooks DOA at
the time of the filing of the Registration Statement and the IPO. The Facebook Board approved
the IPO and reviewed and approved the Registration Statement and Prospectus.
247.
Defendants Zuckerberg, Sandberg, Ebersman, Spillane and the Facebook Board,
prior to and at the time of the IPO, participated in the operation and management of the
Company, and conducted and participated, directly and indirectly, in the conduct of Facebooks
business affairs, including the IPO.
248.
As officers and/or directors of a company engaging in an IPO, Defendants
Zuckerberg, Sandberg, Ebersman, Spillane and the Facebook Board had a duty to disseminate
accurate and truthful information with respect to Facebooks business, financial condition and
results of operations. These Defendants participated in the preparation and dissemination of the
76
Filed 02/28/13 Page 80 of 95
Registration Statement and Prospectus, and otherwise participated in the process necessary to
conduct the IPO. Because of their positions of control and authority as senior officers and/or
directors of Facebook, these Defendants were able to, and did, control the contents of the
Registration Statement and Prospectus, which contained materially untrue information and failed
to disclose material facts.
249.
By reason of the aforementioned conduct, the Individual Defendants are liable
under Section 15 of the Securities Act jointly and severally with and to the same extent as
Facebook is liable under Sections 11 and 12(a)(2) of the Securities Act, to Lead Plaintiffs and
members of the Class who purchased or otherwise acquired common stock issued pursuant to the
Registration Statement.
X.
PRAYER FOR RELIEF

250.
XI.
WHEREFORE, Lead Plaintiffs pray for relief and judgment, as follows:

a.
Determining that this action is a proper class action pursuant to

Rule 23(a) and (b)(3) of the Federal Rules of Civil Procedure on
behalf of the Class defined herein;
b.
Awarding all damages and other remedies set forth in the

Securities Act in favor of Lead Plaintiffs and all members of the
Class against Defendants in an amount to be proven at trial,
including interest thereon;
c.
Awarding Lead Plaintiffs and the Class their reasonable costs and
expenses incurred in this action, including attorneys fees and
expert fees; and
d.
Such other and further relief as the Court may deem just and
proper.
JURY TRIAL DEMANDED

251.
Lead Plaintiffs hereby demand a jury trial.
77
Filed 02/28/13 Page 81 of 95
Dated: February 28, 2013

New York, New York
BERNSTEIN LITOWITZ
BERGER & GROSSMANN LLP
~_.VJJ-___
__
By:~.6~.
By:_\_\.r__
1285 A venue of the Americas

New York, NY 10019
Tel: (212) 554-1400
Fax: (212) 554-1444
140 Broadway
New York, NY 10005
Tel: (212) 907-0700
Fax: (212) 818-0477
Steven B. Singer
John J. Rizio-Hamilton
Thomas A. Dubbs
James W. Johnson
Louis Gottlieb
Court-Appointed Co-Lead Counsel/or the Class
David Kessler
Darren J. Check
KESSLER TOPAZ MELTZER &
CHECKLLP
280 King of Prussia Road
Radnor, Pennsylvania 19087
Tel: (610) 667-7706
Fax: (601) 667-7056
Additional Counsel For Lead Plaintiff

Banyan Capital Master Fund Ltd.
Steven E. Fineman
Daniel P. Chip lock
LIEFF CABRASER HEIMANN &
BERNSTEIN
250 Hudson Street, 8th Floor
New York, NY 10013
Tel: (212) 355-9500
Fax: (212) 355-9592
Additional Counsel For Named Plaintiffs

Jose G. Galvan and Mary Jane Lule Galvan
78
Filed 02/28/13 Page 82 of 95
APPENDIX A
Filed 02/28/13 Page 83 of 95
CERTIFICATION PURSUANT TO
THE FEDERAL SECURITIES LAWS
I, Jay Chaudhuri, hereby certify for the North Carolina Department of State
Treasurer on behalf of the North Carolina Retirement Systems ("North Carolina DST"),
as to the claims asserted under the federal securities laws, that:
1. I am the General Counsel and Senior Policy Advisor of the North Carolina
Department of State Treasurer. I have reviewed a complaint filed in this matter.
North Carolina DST has authorized the filing of this motion for appointment as
lead plaintiff.
2. North Carolina DST did not purchase the securities that are the subject of this
action at the direction of counsel or in order to participate in any action arising
under the federal securities laws.
3. North Carolina DST is willing to serve as a lead plaintiff and representative party
on behalf of the Class, including providing testimony at deposition and trial, if
necessary. North Carolina DST fully understands the duties and responsibilities
of the lead plaintiff under the Private Securities Litigation Reform Act, including
the selection and retention of counsel and overseeing the prosecution of the action
for the Class.
4. The transactions of North Carolina DST in the Facebook, Inc. securities that are
the subject of this action are set forth in the chart attached hereto.
5. North Carolina DST has not sought to serve as a lead plaintiff or representative
party on behalf of a class in any action under the federal securities laws filed
during the three-year period preceding the date of this Certification.
6. North Carolina DST will not accept any payment for serving as a representative
party on behalf of the Class beyond North Carolina DST's pro rata share of any
recovery, except such reasonable costs and expenses (including lost wages)
directly relating to the representation of the Class, as ordered or approved by the
Court.
I declare under penalty of perjury that the foregoing is true and correct. Executed
this 23rd day of July, 2012.
JaYihfilldhUri
General Counsel & Senior Policy Advisor
North Carolina Department ofState Treasurer on

behalf of the North Carolina Retirement Systems
Filed 02/28/13 Page 84 of 95
North Carolina Retirement Systems

Transactions in Facebook Inc. (FB)
Transaction
Purchase
Purchase
Sale
Sale
Sale
Sale
Date
Shares
Price
5/17/2012
5/17/2012
67,600
618,137
38.0000
38.0000
5/18/2012
5/18/2012
5/18/2012
5/18/2012
(29,900)
(4,100)
(18,000)
(15,600)
41.3016
39.6854
42.0000
40.3683
Filed 02/28/13 Page 85 of 95
CERTIFICATION
I, George Hopkins, as Executive Director of Arkansas Teacher Retirement System
("Arkansas Teacher"), hereby certify as follows:

1.
I am fully authorized to enter into and execute this Certification on behalf of
Arkansas Teacher. I have reviewed a complaint filed against Facebook, Inc. ("Facebook") alleging
violations of the federal securities laws;
2.
Arkansas Teacher did not purchase securities of Facebook at the direction of counsel
or in order to participate in any private action under the federal securities laws;
3.
Arkansas Teacher is willing to serve as a lead plaintiff or representative party in this
matter, including providing testimony at deposition and trial, if necessary;

4.
Arkansas Teacher's transactions in the Facebook securities that are the subject of this
action are reflected in Exhibit A, attached hereto;

5.
Arkansas Teacher sought to serve as a lead plaintiff in the following class actions
under the federal securities laws during the last three years preceding the date of this certification:
In,,
MGl'd Mirage Sec111ities LJtigatio11, No. 2:09-cv-1558 (D. Nev.)

!JJ ,, S1111p01ver C01p. Sec111ities LJtigation, No. 3:09-cv-5473 (N.D. Cal.)
City of1\1011roe FiJJJployees' Retimmnt S)stem v. Hartfard Financial Sen1ites Gm11p, Inc.,
No. 1:10-cv-2835 (S.D.N.Y.)
In 1r Go!dma// Sachs Gmnp, !JJc. Secmities LJtigation, No. 1:10-cv-3461 (S.D.N.Y.)
ArkaHsas Teacher Retimvmt .5)ste111 v.1Wo11sr111fo Co., No. 4:10-cv-1380 (E.D. Mo.)
Km'flnl v. Colinthian Colleges, Inc., No. 2:10-cv-6523 (C.D. Cal.)
Beckn1an Co11lte1; Inc. Sec111ities LJtigation, No. 8:10-cv-1327 (C.D. Cal.)
In re Gentiva Sec111ities LJtigation, No. 2:10-cv-5064 (E.D.N.Y.)
Pe1111ylva11ia Public School Emplo)'ees' Retim11e11! .5)ste1J1 v. Bank ofA11mica C01p.,
No. 1:11-cv-733 (S.D.N.Y.)
Ga111111e/ v. He1Ji/et1-Packard, No. 8:11-cv-1404 (C.D. Cal.)
In rn Netflix, Inc. Secmities LJtigatio11, No. 3:12-cv-225 (N.D. Cal.)
Hoppa11gh v. K12 Inc., No. 1:12-cv-103 (E.D. Va.)
S111ith v. JPM01;gan Chase & Co., No. 1:12-cv-3852 (S.D.N.Y.)
In,,
6.
Filed 02/28/13 Page 86 of 95
Arkansas Teacher is currently serving as a lead plaintiff in the following class actions
filed under the federal securities laws during the last three years:
In 1~ MGM Mirage Sec111ities IJtigatio11, No. 2:09-cv-1558 (D. Nev.)

I11 "S1111poJ11er Co1p. Sec111ities IJtigation, No. 3:09-cv-5473 (N.D. Cal.)
In 1~ Go/dma11 Sachs G1m;p, Inc. Secmities Utigation, No. 1:10-cv-3461 (S.D.N.Y.)
Arkansas Teacher Retim11e11t S)stm1 /!, 1VI011sa11to Co., No. 4:10-cv-1380 (E.D. ~Mo.)
Ga1J1111e/ v. I-Ieivlett-Packard, No. 8:11-cv-1404 (C.D. Cal.)
In" Netflix, Inc. Sec11rities Litigation, No. 3:12-cv-225 (N.D. Cal.)
I-Iopprmgh v. K12 Inc., No. 1:12-cv-103 (E.D. Va.)
7.
Beyond its pro rata share of any recovery, Arkansas Teacher will not accept payment
for serving as a lead plaintiff on behalf of the Class, except the reimbursement of such reasonable
costs and expenses including lost wages as ordered or approved by the Court.
I declare under pen~~ of perjury, under the laws of the United States, that the foregoing is
true and correct this
2 2:J
day of July, 2012.
George opkins
Exec11tive Director of
Arkansas Teacher Retimm11t S)ste111
-2-
Filed 02/28/13 Page 87 of 95
EXHIBIT A
TRANSACTIONS IN FACEBOOK. INC.
Transaction Type
Trade Date
Shares
Price Per Share
Purchase
05/17/12
246,849.00
$38.00
($9,380,262.00)
Sale
05/18/12
-104,320.00
$40.07
$4,179,664.26
Cost / Proceeds
Filed 02/28/13 Page 88 of 95
CERTlFICATION PURSUANT TO
THE FEDERAL SECURITIES LAWS
l, Becky Van Wyk, on behalf of the Fresno County Employees' Retirement
Association ("FCERA"), hereby certify, as to the claims asserted under the federal
securities laws, that:
1. I am the Assistant Retirement Administrator ofFCERA. I have reviewed a

complaint filed in thjs matter. FCERA has authorized the filing of this motion for
appointment as lead plaintiff.
2. FCERA did not purchase the securities that are the subject of this action at the
direction of counsel or in order to participate in any action arising under the
federal securities laws.
3. FCERA is willing to serve as a lead plaintiff and representative party on behalf of
the Class, including providing testimony at deposition and trial, if necessary.
FCERA fully understands the duties and responsibilities of the lead plaintiff under
the Private Securities Litigation Reform Act, including the selection and retention
of counsel and overseeing the prosecution of the action for the Class.
4. FCERA's transactions in the Facebook, Inc. securities that are the subject of this
action are set forth in the chart attached hereto.
5. FCERA has sought to serve and was appointed as a lead plaintiff on behalf of a
class in the following actions under the federal securities laws filed during the
three-year period preceding the date of this Certification:
Mallen v. Alphatec Holdings, Inc., et al., Case No. 10-cv-1673 (S.D.N.Y.)

Steamfitters Local 449 Pension Fund v. Central European Distribution Corporation,
Case No. 11 -cv-6247 (D.N.J.)
6. FCERA has served as a representative party on behalf of a class in the following
actions under the federal securities laws filed during the three-year period
preceding the date of this Certification:
The Fresno County Employees ' Retirement Association v. Countrywide Financial

Corporation, et al., Case No. 11-cv-811 (C.D. Cal.)
In re Toyota Motor Corporation Securities Litigation,
Case No. 1O-cv-922 (C.D. Cal.)
Filed 02/28/13 Page 89 of 95
7. FCERA has sought to serve as a lead plaintiff and representative party on behalf
of a class in the following action under the federal securities laws filed during the
three-year period preceding the date of this Certification, but either withdrew its
motjon for lead plaintiff or was not appointed lead plaintiff:

In re BP pie Securities Litigation, Case No. I 0-md-2185 (S.D. Tex)
8. FCERA will not accept any payment for serving as a representative party on
behalf of the Class beyond FCERA' s pro rata share of any recovery, except such
reasonable costs and expenses (including lost wages) directly relating to the
representation of the Class, as ordered or approved by the Court.
I decla~ under penalty of perjury that the foregoing is true and correct. Executed
this J..i!:. day of June, 2012.
;J
Fresno County Employees ' Retirement Association
Fresno County Employees' Retirement Auociation

Transactions in Facebook Inc. (FB)
Transaction
Date
Sharp
Price
Purchase
Purchase
5117/2012
5/17/20L2
37,800
58,100
38.0000
38.0000
Sale
Sale
5/18/20L2
512212012
(7,900)
(13,200)
40.0188
3 1.8080
Filed 02/28/13 Page 90 of 95
Filed 02/28/13 Page 91 of 95
BANYAN CAm.AL MAS'IU. J.i'VND LT.D.'S

CBR'i'DlcATIONlN SllPPOlO'orrrs MOTION
" FOR APPOINTMENT AS LEAD PLA.lN'111F AND
AP.PD.OVALOPL&U> P.L.AINT.IFli"S SELEC170N OF COVNSA
B3DYM- CapJtd Master- Fund Ltd. (''3anyan" or ,ftliu\itl'") deelJres &has:
1.
ll-.ym dJd Mt pnrchast the ~.that
i1 the aubject of thia actlotl. at tht
dfrootlon of Plaintifrs CQUDSel ot in ordor ~ ~ mMY private aotion 'lllldet the federal
s.ecmities laws.
2.
Ban1an ia will.mg to serw as a ~ve party on beJlaJf of the. ClaaA..
inchWintZ pmviding teStilDD%lY depositif>n and trlal, if
necessary..
3.
4.
8enyaA has toll power aao'. mabo'dty tJ;J hrm& ad to l'eCOVet> l.>r IoHes ~as
.- Schedule A to thla
~ ate
Ptabmft'a tranllllCliolJ1!. in
~o~ 'lne. ("PAcebock"') (.NASDAQ: .F.8) cOJl\mon sbate8 during tba Om .Perlcd.
~ m&Wt of Jts m'VOltme.nt mFacebook.
s.
Banyan 1- .lUllJ teviovled the tBcts -
allegations of cotnpbdnt filed iJl ibis

~n and ha& authorized t;fte :6Jir.lg of a mot:io.11 ibt app&intment as Jaad pWntttf on its behn1f ill
$isadion..
Jlmay.m ~ to actively J:nitor ad vigorously PJJm:lC this action for tho

bedt Of thf; Class.
6.
7. . Bariy$l will ea.dea.vo.r tri ~ fidr aDd adtqu.ato ~ and lV(d:

direotlJr with Class tounSeI to easore that the largest~ 1br the Cl48& eomiskmt witbgaod
. faithatd ~Jud.gnumt ii obtained.
8.
--the
federal sec:lttiriel ~ dudng t11e tbda yeata priut to the date Ofthis
in Josq1h De~~ st al. v. Jon S. Cf'(ine. st al.,, No.. 11-cv...786fi..VM
class aCltUm filed

. -~
Banyan ooujht to serve ('btit wu not~ as a~ party b. a
(S.D.N.Y.).
Banyaa will not accept any ~ iO.r: acrving u a~ ,_,, cm

J;dtalf of thB CJess 'yood FJa.inlifrs pro tata W. of any reoove:ry, except aeJi Nl8CllllbJD.
9.
Filed 02/28/13 Page 92 of 95
coats md ~ cm~ lOst; waga) dln';ctly :rdating to the rcp:esentotion of tile ClAss Ill
f;)Idemi Ot appmved by thl Court.
Wo. ~ ~ Ros~ .Ntmson and Alan. 1~, as Dh'flttol's ut

BQym and am aud:l>rimd. to make legal decirdwi$ on bdalt Gf Bu-yan. We aDfiim:ked to
10.
sitJltbis~onBanyatodcdf.Ware.aJao~tomakethc~fOl
forth heteio..
We deomre Wlder penalty of~ tld the~ ia Ct;11e am corteet.
BANYAN CAPJTALMASTERIUm LTD.
-lbls.i.LJ.:v..t
:r~,
,2012.
By:
Jheciltedthis~yof
':fu\..Y
/.ti __,. ..
~Benedkit
~
20J2..
:a~
, A~ ~NJ.d
1
AJao. 'l'llmcr
Dimctor
Filed 02/28/13 Page 93 of 95
SCBJIDULIA
Sseritf
BuvN
Com.Set
11*
Buy
OmlStt
Buy
ComstK
Sell
Sell
512JJ2012
sn:JJ'JJJl'l
512lfl012
5122f2012
ComSik
i ,
QM@!!,
6~8
"195,474.
446.$70
$24,039
r&1s!
$35.79
$32.19-
$34.19
$31..6.1
Filed 02/28/13 Page 94 of 95
CERTIFICATION QF PROPOSED;LEAD PLAINTIFF

We, Jose G. and Mary Jane Lu1e Galvan, certify that:
1.
We have reviewed the facts and allegations of the complaint filed.in this action.
2.
We did not acquire the common stock that are the-subject of this action atthe direction of
plaintiff's counsel odn order to participate in this private action or any other litigation under
.the federal securities laws. .
3. We are willliig to serve as a Lead Plaintiff either individually or as part of a group. We

understand that a Lead Plaintiff is .a .representative party who acts on behalf of other class
members :in directing the action, and whose duties may include providing testimony at
_deposition and _trial; if necessary.
4. We represent.and warrant that we are authorized to execute-this Certification on behalf of the
purchasers of the common stock described herein (ineluding, as the case may be, ourselv~,
any co-o~ers, any_ oorpo~atiqns or oth~r.entities, and/orany beneficial owners).
5. We will "not.accept any payments'forserving as a representative partY on behalf of the class
beyond the purchaser's pro rata share of any recovery, except such rea~onable costs and
expenses (ineluding.lost wages) directly relating to-the.representation ofthe class as ordered,
or approved by the court.
6. We understandtb.at this is not a claim form and that our ability to share .in any recovery as a
member of the class is. unaffected by our decision to setye as a representative party or Lead
Plaintiff.
7. We have listed all our relevant transactions involving common stock of Facebookt Inc. that are
the subject of this actioP. in the attached sclledule.
8. During the th:r:eeyears prior to the date of this Certification, we have not sought to serve .and
we have.not served as a represen~tive_partyfor a class in an action.filed under the federal
securities laws except (if any):.
. We dedareunder pe:rialty .of perjury, under the laWs of th~ United States, that the information
herein.is accurate.
J1J<i,cuted this 1! ' day of ::r., L':\ . , 20
Executed this zg__ ~Y of :r..s1...'1 . , 2012
.. .
.. .
l1 ~ ..
&~,,..,..,_...
~-=-------~-..._..____
~ane Lule Galv
$40.0301
$40.0000
$40.0201
$40.0501
1,100
1,010
1,000
520
5/18/2012
5/18/2012
5/18/2012
5/18/2012
21,100
$40.0401
1,700
Total
($40,020.10)
($20,826.05)
$40.0200
2,230
5/18/2012
5/18/2012
5/29/2012
($40,400.00)
($844,486.83)
5/29/2012
($44,033.11)
5/29/2012
5/29/2012
{$68,068.17)
($89,244.60)
5/29/2012
5/29/2012
($160,040.40)
($169,642.40)
$40.0100
$40.0101
4,240
5/29/2012
Date
($212,212.00)
4,000
Amount
5/18/2012
$40.0400
Share Price
5/18/2012
Shares
Purchased
5,300
Date
Jose & Mary Galvan 5/18/2012
Name
FacebooklFB
SCHEDULE .A.
$28.7050
$28.7100
(2,040)
(100)
(21, 100)
$28.6900
$28.6800
(2,260)
$28.6950
{4,700)
(12,000)
$605,429.00
$2,871.00
$58,558.20
$64,816.80
$134,843.00
$344,340.00
Amount
Filed 02/28/13 Page 95 of 95
Shares Sold Share Price
IN THE UNITED STATES COURT OF APPEALS

_____________________________)
)
GAYE JONES, HOLLY
)
McCONNAUGHEY, Derivatively on)
Behalf of Facebook Inc.,
)
)
Plaintiffs-Appellants)
)
vs.
) Case No. 14-632-cv
)
MARC L. ANDREESSEN, et al., )
)
Defendants-Appellees.)
_____________________________)
)
(Caption continued on next
)
page.)
)
_____________________________)
APRIL 27, 2015 ORAL ARGUMENT
TRANSCRIBED BY:
PATRICIA L. HUBBARD, CSR #3400
Job No. 39198
2
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
IN THE UNITED STATES COURT OF APPEALS

_____________________________
)
(Continued Caption.)
)
_____________________________)
ROBERT CROCITTO, Derivatively)
on Behalf of Facebook Inc., )
)
Plaintiff-Appellant, )
)
vs.
) Case No. 14-1309-cv
)
MARK E. ZUCKERBERG, et al., )
)
Nominal
)
Defendants-Appellee )
_____________________________)
LIDIA LEVY, on behalf of
)
herself and all others
)
similarly situated,
)
)
Plaintiff-Appellant- ) Case Nos. 14-1445-cv
Cross-Appellee,
)
14-1515-cv
)
14-1784-cv
vs.
)
14-1788-cv
)
MARC L. ANDREESSEN, et al., )
)
Defendant-Appellee- )
Cross-Appellant.
)
_____________________________)
19
20
21
22
23
24
25
DAVID FELDMAN WORLDWIDE, INC.

450 Seventh Avenue - Ste 500, New York, NY 10123 1.800.642.1099
3
1
2
3
4
5
TRANSCRIPTION OF APRIL 27, 2015
ORAL ARGUMENT by PATRICIA L.
HUBBARD, CSR #3400, a Certified
Shorthand Reporter in and for the
State of California.
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25

4
1
APPEARANCES OF COUNSEL:
For the Appellee:
LYDIA LEVY
3
4
5
6
SCOTT & SCOTT, LLP

12434 Cedar Road
Suite 12
Cleveland Heights, Ohio 44106
216.229.6088
BY: GEOFFREY M. JOHNSON, ESQ.
gjohnson@scott-scott.com
7
8
9
10
11
12
For the Appellee:
GAYE JONES
ROBBINS GELLER RUDMAN & DOWD, LLP

Post Montgomery Center
One Montgomery Street
Suite 1800
San Francisco, California 94104
BY: ANDREW LOVE, ESQ.
alove@rgrdlaw.com
13
For the Appellee:
ROBERT CROCITTO
14
15
16
17
GLANCY PRONGAY & MURRAY, LLP

122 East 42nd Street
Suite 2920
212.682.5340
BY: GREGORY B. LINKH, ESQ.
glinkh@glancylaw.com
18
19
20
21
22
For the Appellant:
FACEBOOK
KIRKLAND & ELLIS, LLP

212.446.4800
BY: ANDREW CLUBOK, ESQ.
andrew.clubok@kirkland.com
23
24
25

5
1
APPEARANCES:
(Continued)
DENNIS JACOBS, JUDGE

3
ROSEMARY POOLER, JUDGE

4
PETER HALL, JUDGE

5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25

35
1
anyway.
And as -- as Appellees point out, while
the proposed size and price of an IPO will often
fluctuate, it shouldn't be increasing while at the
same time there is material bad news.
This conduct was the subject of the
securities dispute -- decision.
securities decision was -- the claims were -- I did
a motion to dismiss.
10
under way.
11
heard next month.
12
As you know, the
It was denied.
Discovery is
Class cert has been briefed and will be
Now, this conduct is also exacerbated by
13
the magnitude of the sales that Zuckerberg, Breyer
14
and --
15
JUDGE JACOBS:
Looking at the
16
disclosure, and I mean if you want to go to the
17
merits, it basically says that something is
18
happening.
19
There is -- there is an increase -- there is an
20
increase in the number of active daily users that's
21
increasing more rapidly than increasing the number
22
of ads.
23
Even as we speak something is happening.
That's not good.

MR. LINKH:
Well, that was -- that was
24
the key on -- one of the key issues that was
25
discussed in the securities opinion.

36
1
And, yes, there was -- it was disclosed
that there was something going on with mobile
advertising.
4
5
It was not disclosed --
JUDGE JACOBS:
Something bad was going
on with mobile advertising.
MR. LINKH:
Well, something bad was
going on.
that the revenues were actually decreasing.
that was the subject that was the violation of item
10
But they didn't make that further leap

And
303 --
11
JUDGE JACOBS:
Wouldn't somebody assume
12
that if you have more advertising, you're getting
13
more revenue; and if you have less advertising,
14
you're getting less revenue?
15
MR. LINKH:
16
JUDGE JACOBS:
17
18
Well, I mean you -This is not being written
for idiots.
MR. LINKH:
Well, you can assume that.
19
But under regulate -- I guess item 303 of
20
Regulation SK, you actually have to disclose that
21
there is material -- you know, a material decrease
22
in revenues if there's a chance that there will be a
23
material decrease in revenues.
24
25
And that was the issue that was -- that

was the issue that was before the -- before Judge

Evidence For Class Members
Evidence For Investors Excluded By

The District Court And Plaintiffs
Counsel
Blue Ridge: When Blue Ridge made
this decision [to buy Facebook
shares] . . .
Blue
Ridge
further
understood
that
Facebook
had
determined that these trends had
negatively impacted and would continue
to negatively impact revenue growth
(act as headwinds as we called it)
unless and until Facebook could
monetize the mobile usage of its site.
(A-91)
Columbia:
Columbia had been
informed prior to Columbias purchase
of shares in Facebooks IPO [that]
(a) Facebook had revised its internal
revenue numbers to project decreased
growth for 2012 and (b) Facebook had
made those revisions based on the shift
to mobile devices and related product
decisions. (A-1552)
Capital Research: When the funds
purchased
these
shares,
CRGI
understood that (a) Facebook had
revised its internal forecast of future
revenue to project decreased revenue
growth for 2012, and (b) the revised
forecast reflected the expected impact of
growing user migration to mobile
devices and certain product changes.
(A-6)
KKR:
KKR purchased shares in
Facebooks IPO . . . with my knowledge
that . . . Facebook had determined that a
shift to mobile usage had been having,
and was expected in the future to
continue having, a negative impact on
Facebook revenues for 2nd Quarter and
full year 2012. (A-26)
Waddell: At the time of the initial

public offering, the Company [Waddell]
was aware that Facebook Inc. had
recently revised its revenue projections
for 2012 due to increased use of
Facebook on mobile devices which was
negatively impacting revenues more
than had been previously expected.
(A-81)
UBS: I recommended that UBS
purchase shares with the knowledge that
Facebooks revenue projections had
been revised downward due to the
impact that the shift to mobile usage
was already having on Facebooks
revenues. (A-86)
Evidence For Class Members
Evidence For Investors Excluded By

The District Court And Plaintiffs
Counsel
Turner:
After speaking with
Ms. Herman, I had conversations with
analysts and portfolio managers from at
least two dozen institutional investors,
including for example . . . Christopher
Bagini of Turner Investments.
I
remember being careful in my calls with
each of these individuals, and with the
other potential investors with whom I
spoke, to ensure that they knew that
Facebook had revised its projections as
described to me by Ms. Herman. (A1556)
Clovis: I learned that the underwriters
had revised their revenue projections for
Facebook for the second quarter and full
year of 2012 to reflect increased usage
of Facebook on mobile devices. (A1539)
Winslow:
After speaking with
Ms. Herman, I had conversations with
analysts and portfolio managers from at
least two dozen institutional investors,
including for example, Justin Kelly at
Winslow Capital Management . . . I
remember being careful in my calls with
each of these individuals, and with the
other potential investors with whom I
spoke, to ensure that they knew that
Facebook had revised its projections as
described to me by Ms. Herman. (A1556)
Sands:
I understood that the
underwriters had revised their revenue
projections for Facebook for the second
quarter and full year of 2012 to reflect
increased usage of Facebook on mobile
devices, and that this trend was already
negatively impacting revenues (at least
until monetization of mobile usage
increased). (A-1535.2)
Lakewood: I understood at the time of
Facebooks IPO that Facebooks
inability to monetize the increased
mobile usage was negatively impacting
Facebooks revenue growth. (A-80)
Wellington Management Company:

I was aware in the period prior to the
IPO that Facebook was cutting its
projections in advance of the IPO due to
the trend in mobile. (A-89)

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15-_____

United States Court of Appeals

FACEBOOK, INC., IPO SECURITIES

ON APPEAL FROM THE UNITED STATES DISTRICT COURT

PETITION BY DEFENDANTS FOR LEAVE TO APPEAL

Counsel for Facebook, Inc. and Individual Facebook Defendants

CORPORATE DISCLOSURE STATEMENT

J.P. Morgan Securities LLC is a wholly-owned subsidiary of J.P. Morgan

Barclays Capital Inc. identifies the following as parent corporations or

C.L. King & Associates is a privately held company. No public company

No publicly owned company owns ten

percent or more of Loop Capital LLC.

Macquarie Capital (USA) Inc. (Macquarie) is a wholly owned indirect

No publicly traded corporation owns ten

percent or more of Siebert Financial Corp.

Samuel A. Ramirez & Company, Inc. is a wholly owned subsidiary of SAR

/s/ James P. Rouhandeh

There Is A Compelling Need For Immediate Review Of The

There Is A Compelling Need For Immediate Review Of The

Moore v. PaineWebber, Inc.,

innumerable investors actually knew about the allegedly undisclosed information

The district courts order (Op.) is attached as Tab A. Defendants submitted in

The suggestion that class members

knowledge might be inferred on a class-wide basis flouts due processboth the

Some press accounts also reported that the

underwriters revised their estimates of Facebooks projected revenue accordingly.

underwriters did not disclose in the Registration Statementbut the underwriters

Dozens of declarations, multiple depositions, and hundreds of documents

Did the District Court erroneously hold that questions of individual

These are issues of

fundamental importance to the development of the law of class actions.

There Is A Compelling Need For Immediate Review Of The District

varying degrees of knowledge of the alleged omission admittedly requires

Here, the district court recognized that varying knowledge is also

acknowledged, a large number of plaintiffs and potential class members had

But there is no such thing as a presumption of actual knowledge.5 As this Court

Unlike knowledge, there is a presumption of reliance in the securities fraud

any substantive right[s]) (quotation omitted).

The district court relied extensively on a California district court case, In re DJ

Myers, 624 F.3d at 551. Indeed, Wal-Mart

In footnote 6 of its Order, the district court identified 26 institutional investors

This demonstrates why the class must fail the

predominance requirement. Id. at 59.

To begin with, the district court

It is black-letter law that

creates an additional layer of individual issues. First, an investment advisor has no

There Is A Compelling Need For Immediate Review Of The District

Plaintiffs liability theory thus excluded

disclosures relating to underwriters revisions. See id. at 7, 23, 28. In contrast,

attributed to a May 22, 2012 media report of underwriters revised projections.

As noted above, at page 3, the district courts treatment of the NASDAQ

December 28, 2015

/s/ Andrew B. Clubok

CERTIFICATE OF SERVICE & ELECTRONIC MAIL FILING

Co-Lead Counsel For Lead Plaintiffs

Co-Lead Counsel for Lead Plaintiffs,

UNITED STATES DISTRICT COURT

for Lead Plaintiffs and

Attorneys for Proposed Class Representatives

Attorneys for Defendant Facebook

Court-appointed Lead Plaintiffs North Carolina Department

("Rand"), Paul and Lynn Melton (the "Meltons"), and Sharon