In re Facebook, Inc., IPO Sec. & Derivative Litig., MDL No. 12-2389

CourtUnited States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
Writing for the CourtROBERT W. SWEET
Docket NumberMDL No. 12-2389
Decision Date11 December 2013


MDL No. 12-2389


Filed: December 12, 2013
Date: December 11, 2013



Attorneys for the NASDAQ Securities Actions
By: Vincent R. Cappucci, Esq.
Jordan A. Cortez, Esq.
Evan T. Raciti, Esq.
Marc X. LoPresti, Esq.

Attorneys for the NASDAQ Negligence Parties
By: Michael G. McLellan, Esq.
Douglas G. Thompson, Jr., Esq.

By: Christopher Lovell, Esq.
Victor E. Stewart, Esq.

By: Jacob H. Zamansky, Esq.
Edward H. Glenn, Jr., Esq.
Kevin D. Galbraith, Esq.

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By: Kevin I. Goldberg, Esq.

By: Marvin A. Miller, Esq.
Andrew Szot, Esq.

By: Vincent DiTommaso

By: Thomas J. McKenna, Esq.
Gregory D. Egleston, Esq.

By: Richard J. Schager, Jr., Esq.
Andrew R. Goldenberg, Esq.

Attorneys for NASDAQ Defendants
By: William A. Slaughter, Esq.
Paul Lantieri, III, Esq.
Stephen J Kastenberg, Esq.

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Sweet, D.J.

Pursuant to the transfer order from the United States Judicial Panel on Multidistrict Litigation (the "MDL Panel"), entered on October 4, 2012, 41 actions stemming from the May 18, 2012 initial public offering ("IPO") of Facebook, Inc. ("Facebook") are presently before this Court.

The instant motions relate to the class actions against the NASDAQ Stock Market LLC (the "Exchange"), its parent, the NASDAQ OMX Group, Inc. ("NASDAQ OMX," and collectively with the Exchange, "NASDAQ"), Robert Greifeld, NASDAQ OMX's Chief Executive Officer ("Greifeld"), and Anna M. Ewing, NASDAQ OMX's highest-ranking technology officer ("Ewing") (collectively, "Defendants") alleging federal securities (the "NASDAQ Securities Actions") and negligence claims (the "NASDAQ Negligence Actions") (collectively, the "NASDAQ Actions1") brought by First New York Securities LLC, T3 Trading Group, LLC

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and Avatar Securities, LLC (collectively, the "Securities Plaintiffs") and the Negligence Plaintiffs (collectively with the Securities Plaintiffs, the "NASDAQ Claimant Group" or "Plaintiffs").

Plaintiffs move for an order partially lifting the discovery stay imposed under Section 21D(b)(3)(B) of the Securities Exchange Act of 1934, as amended by the Private Securities Litigation Reform Act of 1995, 15 U.S.C. § 78u-4(b)(3)(B) (the "PSLRA"), and for leave to amend the Consolidated Amended Class Action Complaint ("CAC"). Defendants, in turn, move to dismiss the CAC pursuant to F.R.C.P. 12(b)(6).

For the reasons set forth below, (1) Defendants' motion to dismiss is granted in part and denied in part; (2) Plaintiffs' motion to lift the stay is rendered moot; and (3) Plaintiff's motion to amend is granted in part and denied in part.

Prior Proceedings

On September 20, 2012, the MDL Panel held a hearing to determine whether the pending 41 filed actions should be

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transferred to the Southern District of New York. On October 4, 2012, the MDL Panel issued a transfer order, finding that the "Southern District of New York is an appropriate transferee district for pretrial proceedings in this litigation," reasoning that "[m]uch of the relevant discovery will be located in New York, including most discovery relating to alleged NASDAQ trading errors and discovery from the underwriter defendants, many of whom are located in New York." In re Facebook. IPO Secs. & Derivative Litig., 2012 WL 4748325, at *3. The cases were assigned to this Court for coordination or consolidation of the pretrial proceedings. Id.

On October 10, 2012, this Court issued a Practice & Procedure Order Upon Transfer Pursuant to 28 U.S.C. § 1407 (the "October 10 Order"), governing the practices and procedures for the 41 related actions filed against the Facebook Defendants, NASDAQ, and certain underwriter defendants, including the three lead underwriters of the IPO, Morgan Stanley & Co. LLC ("Morgan Stanley"), J.P. Morgan Securities, LLC ("JP Morgan"), and Goldman, Sachs & Co. ("Goldman Sachs") (collectively, the "Underwriter Defendants").2

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The October 10 Order outlined the "Organization, Designation and Responsibilities of Counsel" and set forth the procedures to "designate lead counsel by October 31, 2012, subject to the approval of the Court." (October 10 Order § VII (B).) The October 10 Order also outlined certain procedures "[i]n the event that counsel for each group of parties whose interests are similarly aligned cannot successfully designate lead counsel." (Id. § VII(B)(ii).)

Several parties, representing various interests of class members, filed competing motions for appointment of lead plaintiff and designation of lead counsel. According to the parties, extensive discussions took place with the various lead plaintiff movants and substantial progress toward agreement upon designation was made. On August 3, 2012, the NASDAQ Securities Plaintiffs filed a motion seeking the (1) consolidation of all NASDAQ actions, (2) their appointment as lead plaintiff pursuant to the PSLRA and (3) the approval of Entwistle & Cappucci LLP ("Entwistle & Cappucci") as lead counsel for the class. On

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November 5, 2012, the NASDAQ Negligence Parties filed a brief seeking the designation of Finkelstein Thompson LLP ("Finkelstein Thompson") and Lovell Stewart Halebian Jacobson LLP ("Lovell Stewart") as interim co-lead class counsel for the NASDAQ Negligence Action.

By order on December 4, 2012 ("the December 4 Order"), this court determined that the NASDAQ Actions were consolidated, the Securities Plaintiffs were appointed lead plaintiffs in the NASDAQ Actions, and the NASDAQ Negligence Plaintiffs were appointed co-lead plaintiffs in the NASDAQ Negligence Actions. Entwistle & Cappucci was appointed lead counsel for the NASDAQ Securities Actions and Finkelstein Thompson and Lovell Stewart were appointed co-lead counsel for the NASDAQ Negligence Actions. All other motions pending before the Court related to these actions only were denied.

On April 30, 2013, the NASDAQ Claimant Group filed the CAC, alleging damages in excess of $500 million. On May 29, 2013, the U.S. Securities and Exchange Commission (the "SEC" or the "Commission") issued the Cease-and-Desist Order (the "SEC Order3") in the administrative proceeding against NASDAQ in

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connection with the Facebook IPO.

On June 25, 2013, the NASDAQ Claimant Group moved this Court to enter an order partially lifting the discovery stay imposed by the PSLRA to obtain limited discovery consisting of documents and testimony that NASDAQ, and any of their affiliates, parents, subsidiaries, agents and/or employees, provided to the SEC in connection with the SEC's investigation into the May 18, 2012 initial public offering ("IPO") of Facebook, and for leave to subsequently file a Second Consolidated Amended Class Action Complaint ("SCAC") incorporating relevant facts adduced from the requested discovery materials or alternatively from the SEC Order. On July 2, 2013, Defendants filed a motion to dismiss Plaintiffs' negligence and federal securities claims alleged in the CAC. These motions were heard and marked fully submitted on October 3, 2013.

Allegations of the CAC

Familiarity with the general background of this case is assumed. Certain allegations and facts are repeated in part

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as relevant to the issues presented by the instant motions and are assumed true as set forth in the CAC.

Facebook is a worldwide social networking company that: (i) builds tools that enable users to connect, share, discover, and communicate with each other; (ii) enables developers to build social applications of Facebook or to integrate their websites with Facebook; and (iii) offers products that enable advertisers and marketers to engage with its users. As of February 2, 2012, Facebook had 845 million monthly users and 443 million daily users.

On February 1, 2012, in preparation for its IPO, Facebook filed a Form S-1 registration statement with the SEC. Facebook subsequently amended the registration statement several times, before filing their final Form S-1/A on May 16, 2012 (the "Registration Statement"). On May 18, 2012, Facebook also filed a Form 424(b)(4) Prospectus (the "Prospectus") with respect to the IPO.

NASDAQ OMX is a global publicly-traded company whose wholly-owned subsidiaries operate securities exchanges around the world. (CAC ¶¶ 63-65.) One of those subsidiaries is the Exchange, or NASDAQ LLC, which operates the NASDAQ Stock Market

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in the U.S. (CAC ¶ 65.) NASDAQ OMX is not a self-regulated organization ("SRO"). At all relevant times, Defendants Greifeld and Ewing were officers of NASDAQ OMX, not the Exchange. NASDAQ OMX routinely competes for new listings and overall market share of trading in order to increase revenue and profits. (CAC ¶¶ 63-93.) Specifically, NASDAQ OMX competes against the New York Stock Exchange Euronext ("NYSE"),...

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