US Supreme Court Reviews Lawsuit On Facebook Misleading Investors

US Supreme Court Reviews Lawsuit On Facebook Misleading Investors

The shareholders claimed the company downplayed the risk, which impacted their stock value

The Supreme Court is reviewing a lawsuit against Meta, alleging that Facebook misled investors on a data breach linking the British political consulting firm Cambridge Analytica.

The judges would hear the arguments on the appeal by the social media platform on the decision of a lower court, which allowed the 2018 class action led by Amalgamated Bank. The ruling is expected by June end.

The plaintiffs accused Facebook of misleading investors in violation of the Securities Exchange Act, 1934, which requires publicly traded companies to disclose their business risks.

The social media platform was accused of unlawfully withholding information from investors about a 2015 data breach involving Cambridge Analytica that affected over 30 million users. The shareholders claimed the company downplayed the risk, which impacted their stock value after the breach became public.

The company's stock had fallen after reports appeared that Cambridge Analytica used improperly harvested Facebook user data in connection with US presidential candidate Donald Trump in 2016.

The suit has sought unspecified monetary damages in part to recoup the lost value of the Facebook stock held by the investors.

The matter concerns whether Facebook broke the law when it failed to detail the data breach in subsequent business-risk disclosures, and instead portrayed the risk as hypothetical.

Facebook had argued before the top court that it was not required to reveal that its warning of risk materialized because a reasonable investor understood the risk disclosure to be forward-looking.

In 2021, District Judge Edward Davila dismissed the lawsuit, but, in 2023, the San Francisco-based US Court of Appeals for the Ninth Circuit revived it in a 2-1 ruling.

In the ruling, Judge Margaret McKeown stated, "The problem is that Facebook represented the risk of improper access to or disclosure of Facebook user data as purely hypothetical when that exact risk had already transpired.”

The data breach prompted the government to investigate Facebook's privacy practices, various lawsuits and a congressional hearing at which Meta Chief Executive Mark Zuckerberg was grilled by lawmakers.

In 2019, the Securities and Exchange Commission (SEC) brought an enforcement action against Facebook over the issue, which the company settled for $100 million. The company paid a $5 billion penalty to the Federal Trade Commission.