Facebook settles claims in ‘sponsored stories’ lawsuit

Facebook has agreed to settle a lawsuit that alleges the site's "sponsored stories" advertisements benefited from the "likes" of users without giving them compensation or a chance to opt out, the Los Angeles Times reported.

A "sponsored story" is an ad that appears on a member's Facebook page – often with another friend's name, profile picture and an assertion that the person "likes" the advertiser, Reuters explained.

The settlement was disclosed in a court document filed Tuesday in federal court in San Jose but terms of the deal remain unknown.

Reuters reported the proposed class action lawsuit, filed by five users last year in a San Jose, California federal court, could have included nearly one of every three Americans, with billions of dollars in damages.

More from GlobalPost: Facebook stock declines, Morgan Stanley, Nasdaq under fire

The terms of the settlement are not spelled out in court filings. Facebook could not be reached for comment.

According to the complaint, Facebook's “sponsored stories” were a “misleading advertising scheme” using material posted by Facebook members on their profile pages, Bloomberg News reported.

Facebook shares sank Tuesday to close at $31, more than 18 percent below the initial public offering price of $38.

Meanwhile, Wall Street is talking about reports that Morgan Stanley's consumer Internet analyst unexpectedly reduced his revenue forecasts for the company in the weeks leading up to the May 18 IPO, information that was not available to investors.