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Securities Regulation, Keyed to Choi
Lowinger v. Morgan Stanley & Co.
Citation:
841 F.3d 122 (2016)Facts
On May 18, 2012, Facebook conducted an initial public offering underwritten by a syndicate of thirty-three financial firms, including Morgan Stanley, J.P. Morgan, and Goldman Sachs as Lead Underwriters. As part of standard IPO practice, pre-IPO shareholders who collectively owned more than ten percent of Facebook’s common stock entered into lock-up agreements with the Lead Underwriters. These agreements prevented shareholders from selling their Facebook stock for periods ranging from ninety-one to two hundred eleven days after the IPO without consent from Morgan Stanley acting as agent for the Lead Underwriters. The underwriters sold over 484 million shares at prices between $38.00 and $42.05 per share. Following the IPO, Facebook’s stock price declined significantly. The underwriters had over-allotted shares and covered their short positions by purchasing shares on the open market at prices lower than the IPO price rather than exercising their Green Shoe option, realizing approximately $100 million in profits. Lowinger, a Facebook shareholder, demanded Facebook compel the underwriters to disgorge these profits under Section 16(b), and when Facebook declined, he filed this derivative action.
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