This week, Judge Sweet granted the motion for class certification as part of the ongoing multi-district litigation over Facebook’s alleged negligent misstatements or omissions surrounding its 2012 IPO. Central to the litigation are calls made by Facebook’s treasurer to underwriter analysts to revise revenue projections downward, and the extent that this information spread through the investment community prior to the IPO. Judge Sweet certified a class of all persons who purchased Facebook stock during or traceable to the IPO on May 17, 2012, with two subclasses for institutional and individual/retail investors.
Judge Sweet found that each subclass met Rule 23(b)’s requirements. Judge Sweet rejected Facebook’s arguments that the individual investors were not involved in the spread of information from Facebook’s treasurer to the underwriters analysts, noting that each subclass still met the commonality requirement even if the two subclasses had different questions in common. Judge Sweet also rejected Facebook’s attempt to exclude the class representatives based on their alleged lack of knowledge of the events surrounding the IPO:
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 . . . . Defendants [bring] individualized attacks on myopic aspects of proposed representatives’ understandings of this case. Even if Defendants’ attacks were proper, courts 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. Such circumstances are not present here.
Facebook succeeded in excluding a small number of institutional and individual investors based on their established actual knowledge, though the vast majority of proposed class members remain.