N.C. Pension System Claims $4.1M Facebook Loss

August 20, 2012 (PLANSPONSOR.com) - North Carolina’s retirement system has lost at least $4.1 million from its investment in Facebook, according to a lawsuit.

The Raleigh News & Observer reports the retirement system last week joined a class action lawsuit against the social networking site and its underwriters, including Morgan Stanley and Goldman Sachs, that alleges the companies misrepresented Facebook’s initial public stock offer earlier this year.  

“Facebook and its underwriters told one thing to the public, but shared the real facts with only a few select investors on Wall Street,” State Treasurer Janet Cowell said in a statement, according to the news report. “Our goal is to recover our pension fund’s financial damages.”  

The fund bought 685,737 shares of Facebook stock May 17 at the initial price of $38 a share, according to documents from the state treasurer’s office. The state’s stock portfolio managers then sold a small portion of the $26 million investment the next day, making about $215,000. But the stock dropped nearly 20 percent in the first two days, and now sits at nearly half its original value.   

The state’s reported $4.1 million unrealized loss is a legal calculation; the total amount could be much larger, the news report said. 

In its legal filing, North Carolina argues it deserves to be lead plaintiff in the suit because it suffered the biggest loss among the investors seeking to lead the lawsuit.   

The New York law firm Bernstein Litowitz Berger and Grossmann is representing the state, but a competing law firm is raising questions about whether North Carolina can serve as lead plaintiff given the state treasurer’s ties to Facebook and Morgan Stanley board member Erskine Bowles, who is a named defendant in the lawsuit.  

The News & Observer reports attorney David Rosenfeld with law firm Robbins Geller Rudman and Dowd wrote in court documents that Cowell and the state pension fund “maintain significant personal and financial ties” with Bowles, a prominent Democrat who is a former head of the UNC system and two-time U.S. Senate candidate. The filings assert that Bowles’s investment firm Carousel Capital manages millions of dollars in the state pension fund, and Bowles's wife, Crandall, was a fundraiser for Cowell’s campaign.  

The state’s attorney expects to file a response early next week.