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US market regulators pushed Facebook for details on mobile revenue, Zuckerberg role, Microsoft patents

In the wake of Facebook's February initial public offering (IPO) announcement, US regulators asked the social network for more details about its plans for mobile, CEO Mark Zuckerberg's control of the firm, and its patent purchases, among other things.

As is typical in these situations, America's Securities and Exchange Commission (SEC) penned several letters to Facebook in the months leading up to its official stock market debut, all of which were made public on the SEC website Friday.

The release of documents, meanwhile, comes amidst reports that Facebook wants to consolidate the lawsuits that resulted from its 18 May IPO.

The SEC's first letter [PDF] to the social network, dated 28 February, said that Facebook's assertions that users "could decide" to access the site primarily via mobile "appears to contradict the first part of this risk factor."

"Further, assuming that the trend towards mobile continues and your mobile monetisation efforts are unsuccessful, ensure that your disclosure fully addresses the potential consequences to your revenue and financial results rather than just stating that they 'may be negatively affected,'" the SEC said.

As part of its filing, Facebook said that it had 425 million mobile users, but was not yet making any money from them, which could negatively affect its business. Later that month, it announced plans for ads in the mobile newsfeed. But by May, Facebook logged an amended S-1 filing with the SEC that said it now had 488 million mobile users, who were still not generating any revenue for the social networking giant.

In that letter, meanwhile, the SEC also wanted Facebook to "concisely explain the extent of Mr Zuckerberg's post-offering control." Zuckerberg controls a majority stake in Facebook through share ownership and voting rights cemented by what's called an irrevocable proxy.

In late March, the SEC again wrote to Facebook and asked for details about Zynga's share of ad revenue. Facebook revealed [PDF] it was 7 per cent of revenue, so the SEC asked Facebook to note that that 7 per cent is in addition to the 12 per cent of revenue generated by Zynga payment processing fees in 2011.

The SEC also wanted details about how Facebook calculates monthly average users, and noted "disproportionate trends in average revenue per user that could be material to investors." That included average revenue per user that was much higher in the US, Canada, and Europe than in other parts of the world.

"While your response indicates that you do not 'rely' or 'focus' on calculations of average revenue per MAU, Item 303 of Regulation S-K requires the description of any known trends or uncertainties that have had, or you reasonably expect will have, a material impact on operations," the SEC said.

In a more recent letter [PDF], from 1 May, the SEC also asked for details about Facebook's recent patent acquisitions.

"Please describe the nature of the AOL patents and patent applications acquired from Microsoft," the SEC said. "In addition, please describe the material terms of your license agreement with Microsoft. For example, disclose the duration of the agreement, and the nature of the AOL patents and patent applications licensed."

In April, Microsoft and Facebook agreed to a deal that will see Microsoft license or sell many of the patents it picked up from AOL to Facebook for £350 million in cash.

Facebook officially went public on 18 May at $38 (£24) per share. Shortly thereafter, however, a group of investors sued Facebook and several investment banks over what they considered to be misleading information about the social network's IPO.

According to the New York Times, Facebook is preparing to respond to those accusations and will request that all shareholder complaints be consolidated into one case. That response will reportedly "place some blame on Nasdaq," the Times reported.

A glitch in the Nasdaq's system failed to correctly process transactions on Facebook's opening day. The Times said Nasdaq has " set aside [£25.5 million] to cover broker losses."