A shareholder filed putative class action suit last week in California federal court claiming that the social media giant Facebook made misleading statements in regards to the amount of time users spend watching video ads. The Facebook lawsuit stated that the disclosure of that information caused Facebook’s stock price to drop.
The shareholder in the Facebook shareholders lawsuit, Daniel Anshen, claimed that the company used a flawed metric to determine how long users were watching video ads online. According to the lawsuit, Facebook’s acknowledgment of its error in September 2016 caused shareholders who purchased stock between May 5, 2014, and Dec. 9, 2016, to suffer a loss. Also according to the complaint, much of Facebook’s growth between the dates in question was the result of paid advertisements targeting its users. In order to entice advertisers to buy placements, data was provided to induce ad purchases based on flawed metrics.
Instead of providing information that reflected total time ads were watched divided by the number of viewers, Facebook calculated its data by the total time spent watching a video divided by the number of views lasting at least three seconds long. As a result, the average time users spent watching video advertisements allegedly was overestimated by between 60-80 percent. The shareholder is now claiming that share prices dropped when the truth came out.
According to the complaint in the shareholders lawsuit, Facebook’s stock price dropped twice in relation to the flawed metric: the first was last September upon discovery and disclosure of the error, causing a $2.77 (2.12%) drop. The second occurred in mid-November, when Facebook’s press release claimed it would update its metrics. After the announcement shares fell an additional $.86.
The shareholder in the Facebook lawsuit is claiming that the company and its top executives “knowingly and recklessly participated in a scheme to defraud plaintiffs” by knowingly publicizing an incorrect metric and failing to disclose it to potential advertisers.
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