A Facebook shareholder has just filed a proposed class action lawsuit on Friday in order to stop the firm’s plan to issue new Class C stock, saying the move is an unfair deal to secure CEO Mark Zuckerberg as a controlling shareholder.
The lawsuit was filed in the Delaware Court of Chancery, after the social media company’s announcement last week of its plan to issue the shares.
The change in Facebook’s share structure means a 3-for-1 stock split. Zuckerberg said last year that he will put 99 percent of his Facebook shares into a new project focusing on human potential and equality.
The lawsuit claims that a Facebook board committee which approved the deal did not bargain hard with Zuckerberg to obtain anything of meaningful value in exchange for giving Zuckerberg more control.
However Facebook issued a statement saying the plan “is in the best interests of the company and all stockholders”. The firm said that keeping Zuckerberg as CEO is key to its success in future.
Facebook wants to create a new class of shares that are listed but don’t have voting rights. Facebook plans to issue two of the Class C shares for each Class A and Class B share held by shareholders, with the new Class C shares publicly traded under a new symbol.
Zuckerberg “wishes to retain this power, while selling off large amounts of his stockholdings, and reaping billions of dollars in proceeds”, the lawsuit states.
“The issuance of the Class C stock will, in effect, have the same effect as a grant to Zuckerberg of billions of dollars in equity, for which he will pay nothing”, it added.
Larry Banks is a keen follower of technology and finance. He has worked for a variety of online publications, writing about a diverse range of topics including mobile networks, patents, and Internet video delivery technologies.