Judge says Nasdaq OMX Group Inc must face investors' lawsuits in botched Facebook IPO

December 17
1:08 AM 2013

A federal judge has ruled that Nasdaq OMX Group Inc must face the lawsuits filed by investors who alleged the bourse had botched the $16 billion initial public offering of social media platform Facebook Inc, Reuters reported.

In its bid to have the lawsuits dismissed, Nasdaq had said that as a self-regulatory organization or SRO, it was immune to claims of securities laws violation and allegations that it was negligent in executing orders the buy and sell orders of the social media firm's first day of trading on May 8 last year.

US District Judge Robert Sweet in Manhattan agreed with Nasdaq in its 97-page decision that its status as an SRO made it immune to some claims, such as its decision to proceed with the share sale. However, he did not agree with the efforts of Nasdaq to dismiss claims involving its systems, including its design and testing. But Sweet 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 ruled that the plaintiffs had sufficiently alleged that the inadequate disclosures of Nasdaq had made them lose money because of failed trade executions and a possible artificial downward pressure to the social media firm's share price. Nasdaq had allegedly known that it had not performed the necessary stress tests on its systems to ensure that it could handle Facebook's IPO.

Sweet wrote in his decision, "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. 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." 

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