Facebook is well known as a social platform on which users share information with others. In an ironic twist, Facebook is now the subject of a class action lawsuit alleging that Facebook itself had failed to share information—in this case, with investors in its 2012 IPO regarding intra-quarter trends affecting its business prior to the offering.
Facebook concerned an allegation that, under Item 303 of SEC Regulation S-K, the defendants violated their duty to disclose that the company was aware of a projected material negative impact on its revenues as a result of increasing use of the company’s mobile platform, to the detriment of the then-more lucrative desktop version of Facebook. The existence of this trend was allegedly evidenced by, among other things, the company’s changes to its internal projections that were then shared with syndicate analysts.1 Refusing to dismiss plaintiffs’ complaint at the pleading stage, the court (Judge Robert W. Sweet) found that although there is generally no duty to disclose intra-quarter results, the fact that the trend toward mobile use of Facebook was identified intra-quarter “is of no issue” because under Item 303, there was still a duty to disclose such a trend as well as the expected impact on Facebook’s revenue.2
