A federal judge in Texas has ended a lawyer’s fishing expedition in search of evidence to sue over the Facebook initial public offering before it even had a chance to become a lawsuit.
U.S. District Judge Lee Yeakel, in a terse, 3-page order issued yesterday, told Austin attorney Bogdan Rentea that he wouldn’t order depositions of Mark Zuckerberg, Facebook Chief Financial Officer David Ebersman and others simply because Rentea wanted to find out if there was something to “newspaper reports and accounts from Reuters, the Motley Fool and others” indicating problems with the Facebook IPO.
Rentea filed his petition to depose the executives June 6, bemoaning the fact that he’d purchased shares the day after the May 18 IPO at $42, only to watch them collapse to $27. Like a lot of investors, he’s pissed, although not all investors have a law license like Rentea and the ability to quickly assemble a petition to “verify testimony” for a possible lawsuit. In his motion, Rentea says he needed the testimony of Zuckerberg and others to find out whether he was ripped off.
“The cause appears to be more than just trading misfortune, if one believes what is reported in the press,” Rentea said in his motion. “The problem with reports is they are just that, not facts.”
Among the questions Rentea wanted answered were:
Did the underwriters disclose unfavorable information to institutional investors during the road show?
Did Facebook executives and underwriters artificially inflate the price so they could benefit before the truth came out?
“Other than to `make history’ as the highest IPO ever. why was the IPO priced at $38?”
Even Zuckerberg is probably wondering about that last one.
The judge rejected Rentea’s request, however, saying that the federal courts aren’t designed for fishing expeditions. There is a rule allowing depositions in the rare case where a plaintiff can’t bring suit immediately and needs to depose a witness to preserve the evidence. But this wasn’t that case. “Because Rentea seeks not to perpetuate testimony, as permitted…, but rather to determine whether a cause of action exists, the court finds that his petition to perpetuate testimony should be denied.”
Facebook said this:
" We are pleased with the court’s decision. As we’ve said before, we believe the cases filed against us in connection with the IPO are without merit, and we will continue to defend ourselves vigorously."
Rentea may have failed in his request but Facebook is defending itself against several other lawsuits over the IPO and Zuckerberg and others will likely find themselves in depositions sooner or later. Just not in Austin.
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