A Québec court has tossed out a proposed class action against Facebook and its underwriters over its initial public offering.
A judge in the Québec Superior Court, district of Montreal, rejected a proposed class action by a disgruntled IPO investor alleging misrepresentations by Facebook and its underwriters which, she claims, induced her to pay too much for Facebook’s shares. She sought to bring a class action on behalf of everyone in Québec who purchased Facebook stock as a result of its IPO.
The social networking company and the seven banks and brokerage firms that underwrote the massive IPO moved to dismiss the suit on the grounds that the Québec court lacks jurisdiction; or that it should decline jurisdiction in favour of the New York District Court, which is already handling a number of class actions relating to Facebook’s IPO.
The court sided with the company and its brokers, ruling that there is not enough of a connecting factor to Québec for it to take on the case. The decision notes that all of the respondents’ alleged activities occurred in the U.S., not in Québec; Facebook is not a reporting issuer in Québec; nor has it distributed securities in the province.
The only connecting factor with Québec, it notes, is that investors in the province suffered damage as a result of having purchased Facebook shares at an inflated price. “Nothing happened in Québec other than the recording of the petitioner’s loss in her brokerage account,” it found.
While it was unnecessary to deal with the question of whether Québec’s courts should decline jurisdiction, given the ongoing suits in New York, the judge in the case nevertheless ruled that the court would have declined its jurisdiction in favour of the New York courts.
It notes that there already 41 U.S. lawsuits relating to the Facebook IPO that have been consolidated and are proceeding before the New York courts involving the same basic allegations, and that the proposed class covered by that litigation, if approved, would include investors in Québec.
“Given the allegations of misrepresentation and insider trading in the United States, and considering that Facebook issued its prospectus under the rules of the US Securities and Exchange Commission and traded its shares on the NASDAQ exchange in New York, there is little question that New York law will apply to the actions against the respondents,” it says.
“The New York District Court appears to be the natural forum to hear the actions against the respondents, and Québec shareholders appear to have no advantage in proceeding by way of a duplicative and costly action in this province. There is no reason to believe that their interests would be less well protected in the New York litigation than they would be here,” it concludes.