* Facebook said to conceal mobile usage impact on revenue
* Facebook says lawsuit without merit
* Sandberg, Morgan Stanley, others were also sued
By Jonathan Stempel
NEW YORK, Dec 18 (Reuters) - Facebook Inc, Chief Executive Mark Zuckerberg and dozens of banks must face a lawsuit accusing the social media company of misleading investors about its health before its $16 billion initial public offering, a federal judge said.
In a decision made public on Wednesday, U.S. District Judge Robert Sweet in Manhattan said investors could pursue claims that Facebook should have prior to its May 2012 IPO disclosed internal projections on how increased mobile usage and product decisions might reduce future revenue.
"The company's purported risk warnings misleadingly represented that this revenue cut was merely possible when, in fact, it had already materialized," Sweet wrote in his 83-page decision. "Plaintiffs have sufficiently pleaded material misrepresentation(s) that could have and did mislead investors regarding the company's future and current revenues."
In a statement, Facebook said: "We continue to believe this suit lacks merit and look forward to a full airing of the facts."
Facebook went public at $38 per share. The Menlo Park, California-based company's share price rose as high as $45 on May 18, 2012, its first day of trading, but quickly fell below the offering price and stayed there for more than a year.
Investors including pension funds in Arkansas, California and North Carolina claimed that Facebook negligently concealed material information from its IPO registration statement that it had provided to its underwriters' analysts.
They sought damages resulting from their having sold or holding onto the shares as they fell below the IPO price, bottoming at $17.55 on Sept. 4, 2012.
The lawsuit does not allege fraud. More than 40 defendants were sued, including Facebook Chief Operating Officer Sheryl Sandberg, lead underwriter Morgan Stanley, Goldman Sachs Group Inc and JPMorgan Chase & Co.
In Wednesday trading, Facebook shares closed up 71 cents at $55.57. Facebook is expected to join the Standard & Poor's 500 index after the close of trading on Friday.
FACEBOOK: LAWSUIT LACKS MERIT
In court papers, the defendants had argued that Facebook had no obligation to make the requested disclosures, which they called immaterial, and that Facebook's actual results exceeded original projections.
They added that the U.S. Securities and Exchange Commission and other courts have said revenue projections need not be disclosed before an IPO because they are "inherently speculative and unreliable."
Morgan Stanley spokeswoman Mary Claire Delaney declined to comment.
The lead plaintiffs are represented by the law firms Bernstein Litowitz Berger & Grossmann, and Labaton Sucharow.
Both firms "are quite pleased with the thorough and detailed opinion by the court," said Thomas Dubbs, a Labaton Sucharow partner, in a phone interview. "We look forward to prosecuting this action vigorously."
Dubbs said U.S. securities laws allow damages to be pursued by IPO investors who sold shares at a loss, as well as by investors who held on while the share price remained below what it would have been absent the alleged violations.
Zuckerberg, 29, founded Facebook about a decade ago. Forbes magazine said he was worth $19 billion in September.
Sweet oversees litigation arising from the IPO, and the investor case combined 30 lawsuits brought around the country.
On Monday, the judge issued a decision that investors could also pursue claims accusing Nasdaq OMX Group Inc of concealing technology problems that led to difficulties in processing trades on Facebook's first day of trading.
He dismissed claims over Nasdaq's decision not to halt the IPO or cancel trades.
Sweet's decisions are dated Dec. 11 but were not made public for several days.
The case is In re Facebook Inc IPO Securities and Derivative Litigation, U.S. District Court, Southern District of New York, No. 12-md-02389.