In re Facebook, Inc., IPO Securities and Derivative Litigation
United States District Court for the Southern District of New York
986 F. Supp. 2d 428 (2013)
- Written by Steven Pacht, JD
Facts
NASDAQ LLC (exchange) (defendant) operated the NASDAQ stock market in the United States. The exchange was a self-regulatory organization (SRO) pursuant to the Securities Exchange Act of 1934. The exchange was a wholly owned subsidiary of NASDAQ QMX Group, Inc. (QMX) (defendant), a for-profit company. On May 18, 2012, Facebook, Inc. launched an initial public offering (IPO) on the exchange. Facebook’s IPO was plagued by technical problems with the exchange’s software. The exchange considered halting trading in Facebook stock due to the technical issues but decided that it lacked authority to do so because there had not been extraordinary trading activity. The exchange also declined to cancel Facebook trades that were affected by the technical problems. These decisions were not made by employees of the exchange’s regulatory arm but rather by businesspeople. Facebook shareholders (shareholders) (plaintiffs) sued, among others, the exchange and QMX, alleging that they had been negligent regarding (1) the design, promotion, and testing of the exchange’s software (technology claims) and (2) the decision not to halt trading in Facebook and not to cancel certain Facebook trades (trading claims). The exchange and QMX moved to dismiss the complaint on absolute-immunity grounds, arguing that the shareholders’ claims arose out of the exchange’s performance of its regulatory duty as an SRO. The shareholders responded that the exchange and QMX were not absolutely immune regarding the technology claims because the exchange and QMX were motivated by a desire to generate greater profit when they falsely claimed that the exchange’s software was suitable for IPOs like Facebook’s. Thus, the shareholders claimed, the exchange’s technology-related negligence pertained to the exchange and QMX’s for-profit business, not the exchange’s regulatory role. The shareholders further argued that absolute immunity did not shield the decision to continue Facebook trading or cancel Facebook trades because businesspeople, not the exchange’s regulatory employees, made those decisions.
Rule of Law
Issue
Holding and Reasoning (Sweet, J.)
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