In fact, the securities-fraud claim was merely some legal legerdemain by which the Winklevoss brothers sought to set aside the $65 million settlement they had struck with Facebook in their quest to obtain more. It is basically absurd to say that a party settling a legal case must comply with the disclosure laws for making a private placement in offering a stock component as part of a settlement package in a mediation context.
The Ninth Circuit panel here obviously agreed, and the writing was on the wall on this issue even after the oral argument held three months ago (see my comment here: http://news.ycombinator.com/item?id=2096370).
The case is not necessarily dead, at least in theory, since the Winklevoss brothers might petition to have it reconsidered en banc by the full Ninth Circuit and can file for a writ to the Supreme Court. At this stage, though, such options are long-shot options at best.
I note one irony in passing. The ratio of the stock value to cash payment that made up the original settlement was not coincidental. The $65 million value consisted of 1.2 million Facebook shares originally valued at $45 million plus $20 million in cash. Receipt of such stock is a taxable transaction and, indeed, would constitute ordinary income to the Winklevoss brothers. Thus, they were to have received $65 million in taxable income, including $20 million in cash to help cover the tax. But that was then. Having chosen to fight the issue, they would not have realized any form of taxable income on this deal until they actually received the stock. As a result, when they now receive the cash/stock package, they will realize an estimated $170 million in taxable income (the cash plus FB stock worth $150 million), with only $20 million to help defray taxes. That stock will not be immediately marketable, even on the secondary exchanges and will require FB's permission to be sold there. The net result, unless I mis-analyze, is that the Winklevoss brothers have by their choosing to fight managed to convert over $100 million in stock value from what would have been a long-term capital gain into ordinary income, will have to pay much higher taxes accordingly, and will (I would assume) be faced with a serious logistical problem in the form of a short-term cash squeeze in raising funds to cover the taxes. I am not a tax specialist and may be wrong on this, but I don't think so.
FB dodged a bullet on this one. Had the settlement been set aside, the liability overhang would very likely have messed up its IPO, among other serious consequences. That was the gamble apparently made by the Winklevoss brothers - that they would be able to exact a much larger settlement as a result of their leverage obtained from having the issues re-opened. It appears, though, that they gambled and lost and not without detriment to themselves. For its part, FB now seems to be in the clear.