By Bob Van Voris - May 23, 2012 5:28 AM GMT+0700
A Facebook Inc. (FB) investor sued Nasdaq OMX Group Inc. (NDAQ) claiming the stock exchange “badly mishandled” Facebook’s initial public offering, delaying trading and failing to cancel orders when requested by customers.
Phillip Goldberg, a Maryland investor, said in a complaint filed today in Manhattan federal court that he tried to both order and cancel requests for Facebook shares through an online Charles Schwab Corp. (SCHW) account the morning after the May 17 IPO. He is seeking to represent a class of investors who lost money because their buy, sell or cancellation orders for Facebook stock weren’t properly processed, according to the filing.
“Orders placed by investors seeking to purchase Facebook shares during the first trading day often took hours to execute,” Goldberg said in the complaint. “In the meantime, the investors seeking to purchase those shares had no idea if their trades had executed, and, accordingly, had no idea if they owned Facebook shares at all.”
Goldberg, who claims Nasdaq acted negligently, is seeking unspecified damages. The U.S. Securities and Exchange Commission has said it will review the opening day of trading in Facebook shares on Nasdaq. The exchange has blamed poor design in the software used to drive auctions in IPOs.
Public Trading
Robert Madden, a spokesman for Nasdaq, didn’t immediately return a call seeking comment on the suit. Ashley Zandy, a spokeswoman for Facebook, the world’s biggest social network, declined to comment on the suit.
Goldberg claims that on May 18, he tried to make a series of limit buy orders through his online account. The trades failed to execute and he tried to cancel. Instead of canceling the trades, Goldberg’s account reflected the cancellation orders as “pending” throughout the day, he said.
Goldberg said that even with the cancellation orders, one trade, at $41.23, was executed about three hours after it was placed, when Facebook shares were trading at about $38.
Some investors lost money when their orders to cancel trades weren’t processed, as Facebook’s share price declined and buy orders were executed at the higher, earlier prices, Goldberg claimed. Others weren’t able to determine whether their orders had been executed, making it impossible to sell the shares and avoid losses, he said.
Thousands of Investors
Goldberg cited press reports blaming the delays on New York-based Nasdaq and claiming that as many as 30 million Facebook shares were affected. He said there are thousands of investors in the class he seeks to represent in the suit.
Goldberg alleged that Nasdaq was negligent in failing to ensure trades were executed quickly and correctly, in not exercising effective quality control and in failing to oversee employees and contractors involved in executing the trades.
Facebook, which raised $16 billion in its initial public offering, fell 8.9 percent to $31 today at 5:20 p.m. New York time. The price was $7 below Facebook’s $38 offer price.
The IPO valued the Menlo Park, California-based company company at $104 billion.
The case is Goldberg v. Nasdaq OMX Group Inc., 12-CV-04054, U.S. District Court, Southern District of New York (Manhattan).
To contact the reporter on this story: Bob Van Voris in New York at rvanvoris@bloomberg.net
To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net
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