In re Facebook, Inc., IPO Securities and Derivative Litigation (S.D.N.Y.)

Entwistle & Cappucci serves as court-appointed co-lead counsel in the well-publicized class action against The NASDAQ OMX Group, Inc. and The NASDAQ Stock Market LLC (collectively, “NASDAQ”) on behalf of investors who lost in excess of $500 million on the day of Facebook Inc.’s (“Facebook”) May 18, 2012 initial public offering (“IPO” or “Offering”).

On May 18, 2012, Facebook offered shares of its common stock valued at more than $16 billion, in the largest initial public offering in NASDAQ’s history and the third-largest in U.S. history.  While investors from around the world sought to participate in the highly-anticipated Offering, Defendants are alleged to have known – both prior to and on the day of the IPO – that significant system limitations would render NASDAQ’s electronic trading platforms incapable of executing the Offering.  Ultimately, on May 18, 2012, NASDAQ’s trading platforms experienced a systemic breakdown in connection with the Offering, causing investors enormous financial losses through execution failures and market order disruption.

On July 2, 2013, Defendants moved to dismiss the action, contending that the Class’s claims arose out of actions or inactions that were within the scope of NASDAQ’s delegated regulatory responsibilities and accordingly were precluded under the doctrine of immunity for self-regulatory organizations (“SRO immunity”).  On December 11, 2013, the District Court principally denied Defendants’ motion to dismiss, determining that SRO immunity did not bar the Class’s securities claims in connection with Defendants’ failure to update and/or correct commercial statements touting the reliability and capability of NASDAQ’s technology and trading platforms.  Significantly, this is the first time that any court within the Second Circuit has rejected a national securities exchange’s assertion of SRO immunity.  The District Court’s denial of immunity and other rulings are currently on appeal by NASDAQ to the Second Circuit.

The issues in this litigation are particularly significant as the regulatory role of traditional exchanges are being reexamined by the SEC as a multitude of new private trading venues have developed, advocating a “level playing field” of competitive markets.