Facebook, along with its CEO, and dozens of banks are facing a lawsuit, accused of misleading investors about the health of the company prior to its $16 billion initial publicj offering. Though negligence, rather than outright fraud is being suggested, US district judge Robert Sweet in Manhattan said Facebook should have disclosed  internal projections on how increased mobile usage and product decisions might reduce future revenue.

In the judge’s words, “The company's purported risk warnings misleadingly represented that this revenue cut was merely possible when, in fact, it had already materialised," Sweet wrote in his 83-page decision. "Plaintiffs have sufficiently pleaded material misrepresentation(s) that could have and did mislead investors regarding the company's future and current revenues." 

This omission certainly worked in the company’s favor.  Facebook’s shares initially went public at $38, then soared to $45 a share on May 18, 2012, its first day of trading. However, the price then plummeted to below $38 a share, and stayed there for over a year.

Investors including pension funds in Arkansas, California and North Carolina are seeking damages resulting from their having sold or holding onto the shares as they fell below the IPO price, bottoming at $17.55 on September 4, 2012.  The lead plaintiffs are represented by the law firms Bernstein Litowitz Berger & Grossmann, and Labaton Sucharow.

Facebook, not surprisingly, released the following statement In response: "We continue to believe this suit lacks merit and look forward to a full airing of the facts."

Over 40 defendants were named, including Facebook Founder & CEO Mark Zuckerberg, COO Sheryl Sandberg, lead underwriter Morgan Stanley, Inc and JPMorgan Chase & Co, and Goldman Sachs Group

Zuckerberg, 29, is estimated to be worth about $19 billion. Facebook is expected to join the Standard & Poor's 500 index after the close of trading on Friday.

The  judge also issued a decision that investors could pursue claims accusing Nasdaq OMX Group Inc  as well, for concealing technology problems that led to difficulties in processing trades on Facebook's first day of trading.