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 Nasdaq had argued that its status as a self-regulatory organization
(SRO) gave it immunity from claims it broke securities laws and was
negligent in how it executed orders to buy and sell shares of the
social media company on May 18, 2012, the first day of trading.
In a 97-page decision, U.S. District Judge Robert Sweet in Manhattan
agreed that SRO status gave Nasdaq immunity from some claims,
including the decision not to halt the IPO.
But he rejected Nasdaq's effort to dismiss claims over the design
and testing of its systems, including that it allegedly knew its
advertised "on-time, on-target and ready-to-launch" had not
undergone the "stress tests" needed to ensure it was up to handling
trading in Facebook.
Sweet said the plaintiffs adequately alleged that Nasdaq's
inadequate disclosures caused them to lose money through failed
trade executions and possible "artificial downward pressure" on
Facebook's share price.
"Once this testing revealed inadequacies and flaws in light of the
upcoming largest IPO in Nasdaq history, Nasdaq had a duty to correct
its prior statements as to its capabilities," the judge wrote. "Nasdaq's
failure to correct flawed information about its technology
capabilities could have impacted plaintiffs' decision to participate
in Facebook's offering and ability to trade during that offering."
Joseph Christinat, a Nasdaq spokesman, declined to comment on the
decision, which is dated December 12.
Vincent Cappucci, a lawyer for some of the plaintiffs, said in an
email he is pleased that the case can go forward.
The judge did not rule on the merits of the plaintiffs' surviving
claims. He said the plaintiffs might amend their lawsuit with
respect to claims not protected by SRO immunity.
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Facebook, based in Menlo Park, California, went public at $38 per
share. Its share price rose as high as $45 on the first day, but
quickly fell below the offering price and remained there for more
than a year.
In May, Nasdaq agreed to pay $10 million, a record penalty against a
stock exchange, to settle U.S. Securities & Exchange Commission
charges over its alleged "poor systems and decision-making" when
handling Facbeook's IPO. Nasdaq did not admit wrongdoing in agreeing
to settle.
The investor lawsuit against Nasdaq is part of nationwide Facebook
IPO litigation that Sweet oversees.
Investors also sued Facebook, Chief Executive Mark Zuckerberg and
dozens of banks for allegedly being misled prior to the IPO about
the company's financial condition.
Facebook has since become profitable, and is expected to join the
Standard & Poor's 500 index after the close of trading on December
20.
In Monday trading, Facebook shares closed up 49 cents at $53.81, and
Nasdaq shares rose 17 cents to $38.72.
The case is In re Facebook Inc IPO Securities and Derivative
Litigation, U.S. District Court, Southern District of New York, No.
12-md-02389.
(Reporting by Jonathan Stempel in New
York; editing by Andre Grenon)
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