The U.S. Supreme Court on Wednesday is set to consider Facebook's attempt to escape a federal securities fraud lawsuit brought by shareholders who accuse the social media platform of misleading them about misuse of its data. users.
The justices will hear arguments in Facebook's appeal of a lower court's ruling certifying the 2018 class-action lawsuit led by Amalgamated Bank. It's one of two cases before them this month – the other involving artificial intelligence chipmaker Nvidia – that could result in rulings making it harder for private plaintiffs to seek damages. accounts to companies for alleged securities fraud.
The plaintiffs accuse Facebook of misleading investors in violation of the Securities Exchange Act, a 1934 federal law that requires publicly traded companies to disclose their business risks. They claimed the company illegally withheld information from investors about a 2015 data breach involving British political consulting firm Cambridge Analytica, which affected more than 30 million Facebook users.
Facebook's stock fell following media reports in 2018 that Cambridge Analytica used inappropriately harvested Facebook user data as part of Donald Trump's successful 2016 U.S. presidential campaign. The lawsuit targets to recover unspecified monetary damages, in part to recoup the lost value of Facebook shares held by investors.
The question is whether Facebook broke the law by not detailing the earlier data breach in its subsequent business risk statements, and instead presenting the risk of such incidents as purely hypothetical.
Facebook argued in a brief to the Supreme Court that it was not required to disclose that the risk it had been warned about had already materialized, because “a reasonable investor” would understand that the risk information is forward-looking statements.
U.S. District Judge Edward Davila dismissed the lawsuit in 2021, but the San Francisco-based 9th U.S. Circuit Court of Appeals revived it in 2023 in a 2-to-1 decision.
“The problem is that Facebook presented the risk of inappropriate access or disclosure of Facebook user data as purely hypothetical, when that exact risk had already occurred,” Justice Margaret McKeown wrote in the ruling. decision of the 9th Court of Appeal.
The Supreme Court is expected to rule by the end of June.
The Cambridge Analytica data breach led to U.S. government investigations into Facebook's privacy practices, various legal actions, and a U.S. Congressional hearing at which Mark Zuckerberg, Director general of Meta, was questioned by the legislators.
In 2019, the United States Securities and Exchange Commission filed a lawsuit against Facebook over the matter, which the company settled for $100 million. Facebook paid a separate $5 billion penalty to the U.S. Federal Trade Commission over the Cambridge Analytica issue.
On November 13, the Supreme Court is scheduled to hear arguments in Nvidia's similar appeal to avoid a securities class action accusing it of misleading investors about how much of its sales went to the volatile crypto sector. currencies.
In previous rulings, the Supreme Court has limited the authority of the SEC, the federal agency responsible for combating securities fraud. Its rulings in the Facebook and Nvidia cases could now make it harder for individuals to hold companies accountable for such actions.
