The U.S. Supreme Court is set to consider a bid by Meta's on Facebook to scuttle a federal securities fraud lawsuit which was brought by shareholders who accused the social media platform of misleading them about the misuse of its user data. The justices will hear the arguments in Facebook's appeal of a lower court's decision allowing the 2018 class action led by Amalgamated Bank to proceed. It is one of the two cases which are coming before them this month - the other one involving artificial intelligence chipmaker Nvidia - that could lead to rulings making it harder for private litigants to hold companies to account for alleged securities fraud.
The complaints were accused by 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 unlawfully withheld information from investors about a 2015 data breach involving British political consulting firm Cambridge Analytica that affected more than 30 million Facebook users.
Facebook's stock fell following 2018 media reports that Cambridge Analytica had used improperly harvested Facebook user data in connection with Donald Trump's successful U.S. presidential campaign in 2016. The suit seeks unspecified monetary damages in part to recoup the lost value of the Facebook stock held by the investors.
At issue is whether Facebook broke the law when it failed to detail the prior data breach in subsequent business-risk disclosures, and instead portrayed the risk of such incidents as purely hypothetical.
Facebook argued in a Supreme Court brief that it was not required to reveal that its warned-of risk had already materialized because "a reasonable investor" would understand risk disclosures to be 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 in a 2-1 ruling revived it in 2023.
Judge Margaret McKeown wrote in the 9th Circuit decision: "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."
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Reported by Reuters
