A Facebook shareholder has decided to sue the company over its plan to issue new stock. Its claimed in the lawsuit that the company’s plan would allow Facebook CEO Mark Zuckerberg to make a fortune selling Facebook shares, while still retaining a controlling share of the company. Zuckerberg stated in December of last year his intention to sell 99% of his Facebook shares to fund a philanthropy project, and this stock split is seen as a way to maintain control of the company once he has sold most of his shares. The lawsuit a proposed as a class action suit, but the judge will decide whether it can proceed as a class action or not.
The company’s plan is a stock split which would issue two Class C shares for every Class A and Class B share already held by shareholders. Class B shares already have 10 times the voting rights of Class A shares, allowing Zuckerberg to hold a majority vote with a relative small proportion of the total shares. The new Class C shares would not have any voting rights at all. The new shares would also be traded under a different symbol. This plan has already been approved by Facebook’s board of directors.
The lawsuit argues that the board “did not bargain hard” with Zuckerberg over his proposed stock split. The suit also 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 also claims that Zuckerberg “wishes to retain this power, while selling off large amounts of his stockholdings, and reaping billions of dollars in proceeds.”
Facebook made an official statement on the matter saying that the plan is in the best interests of the company Zuckerberg’s leadership is important to the company’s success. In 2013, Google was faced its own lawsuit over a similar stock splitting plan. Google was able to proceed with its plan to issue new stock after settling out of court shortly before the trial was scheduled to be heard.