High Court Takes Up Facebook Securities Fraud Case
The U.S. Supreme Court is currently reviewing an appeal related to a securities fraud case against Meta Platforms Inc. (formerly known as Facebook) (NASDAQ:META). Shareholders have filed a class-action lawsuit against the social media giant, alleging that it misled investors by failing to disclose the misuse of user data.
The lawsuit, led by Amalgamated Bank (NASDAQ:AMAL), is based on the claim that Facebook violated the Securities Exchange Act by not informing investors about the 2015 data breach involving Cambridge Analytica, which affected over 30 million users. The breach was widely reported in 2018 and led to a significant drop in Facebook's stock value. Shareholders are seeking monetary compensation to recover the lost value of Facebook shares.
Facebook contended that it was not required to disclose the data breach in its risk statements, arguing that such disclosures would be perceived as forward-looking by "reasonable investors." However, the 9th U.S. Circuit Court of Appeals revived the lawsuit in 2023 with a 2-1 decision, reversing the ruling made by U.S. District Judge Edward Davila in 2021. The appellate court determined that Facebook's hypothetical depiction of risks related to the data incidents was misleading, as the risk had already materialized.
The Cambridge Analytica scandal led to multiple government investigations in the U.S., various lawsuits, and a congressional hearing where Meta CEO Mark Zuckerberg testified. As a result of these events, Facebook paid a $100 million settlement to the U.S. Securities and Exchange Commission in 2019 and was fined $5 billion by the U.S. Federal Trade Commission.
The outcome of Facebook's appeal could have broader implications for corporate accountability in securities fraud cases. The Supreme Court is expected to issue a decision by the end of June.
In a related matter, the Supreme Court will also hear Nvidia's (NASDAQ:NVDA) similar appeal on November 13. Nvidia is accused of misleading investors regarding its sales tied to the cryptocurrency market. These cases follow the Supreme Court's trend of limiting the SEC's authority to regulate securities fraud, which could further impact the ability of private plaintiffs to pursue such claims against companies.