Insider trading allegations as Facebook shares slide to $27

Facebook investors are alleging in a recently filed class-action lawsuit that CEO Mark Zuckerberg had inside information that the company’s stock was overvalued and dumped shares ahead of their post-IPO plummet.

A class action lawsuit alleges that Mark Zuckerberg knew the Facebook business model was not built to support a share price of $US38. Picture: Getty Images

According to TMZ, the suit alleges that Zuckerberg knew Facebook shares had been valued too high ahead of the company’s historic IPO and sold off a large chunk as the price dropped following their debut.

In particular, the suit alleges that Zuckerberg hid from most investors the fact that the Facebook business model was not built to sustain enough advertising revenue to support an IPO price of $US38 a share.

The suit claims that underwriters Morgan Stanley, J.P. Morgan Chase, and Goldman Sachs all warned Zuckerberg before the IPO that the company was overvalued, but that the information was “selectively disclosed” to only the social network’s largest investors.

Facebook’s stock fell 3 per cent overnight and closed this morning at a new low.

Shares of Facebook Inc. slid 82 cents to close at $US26.90, after briefly trading as low as $US26.44.

Facebook shares have fallen nearly 30 per cent since their May 18 debut.
Source: News.com.au