Facebook Securities Fraud Case Dropped

(VOR News) – On Friday, the United States Supreme Court refrained from issuing a rule on Facebook’s permissibility of shareholders advancing a securities fraud claim.

The litigation alleges that Facebook, a subsidiary of Meta, misled investors about the improper utilization of user data from the social media site.

At their hearing on November 6, the justices denied Facebook’s appeal against a lower court’s ruling that allowed a class action lawsuit initiated by Amalgamated Bank in 2018 to proceed.

On November 6, the Supreme Court stated that the issue should not have been addressed and, therefore, opted not to resolve the fundamental legal question at hand. The intervention ensures that the lower court’s verdict remains in force.

The court issued a one-line order for dismissal without providing a rationale. This month, the Supreme Court addressed two cases concerning the ability of private litigants to hold companies accountable for purported securities fraud. One such instance was the dispute involving Facebook.

The alternative case for chip manufacturer NVIDIA, renowned for its specialization in artificial intelligence, was discussed on November 13th. The Supreme Court rendered a verdict in the NVIDIA case on November 13th.

The plaintiffs in the lawsuit against Facebook claimed that the company had inappropriately withheld information from investors concerning a 2015 data breach involving the British political consulting firm Cambridge Analytica.

The incident impacted over 30 million Facebook users.

Facebook faced allegations of misleading investors, constituting a violation of the Securities Exchange Act, a federal statute established in 1934 that requires publicly traded companies to disclose the risks they encounter.

In 2018, media claims indicated that Cambridge Analytica had improperly utilized Facebook user data during Donald Trump’s successful 2016 presidential campaign, resulting in a fall in Facebook’s stock market price.

The investors have submitted a claim for unspecified monetary damages to partially offset the value of the stock they previously possessed.

The inquiry at hand was whether the company had contravened the law by declining to disclose details regarding the prior data breach in later business-risk disclosures while characterizing such scenarios as merely hypothetical.

Andy Stone, a representative, expressed his discontent with the Supreme Court’s decision to refrain from clarifying this specific legislative provision.

Stone asserted, “The plaintiff’s allegations are unfounded, and we will persist in our defense as the district court reviews this case.”

Facebook asserted that it was not obligated to disclose that the risk it had previously cautioned about had already materialized, as “a reasonable investor” would interpret risk disclosures as forward-looking statements.

President Joe Biden’s administration expressed its support for shareholders in this instance.

Initially dismissed by United States District Judge Edward Davila, the 9th United States Circuit Court of Appeals in San Francisco reinstated the action.

The decision compelled Facebook to appeal to the Supreme Court.

As Alan Morrison, a law professor at George Washington University, states, the plaintiffs are anticipated to pursue discovery, a process entailing the sharing of information between the litigating parties, following the Supreme Court’s dismissal of the appeal.

Morrison also indicated that Facebook “may refile their motion to dismiss under a slightly altered standard, partially to achieve delay.”

After the Cambridge Analytica data breach, the United States government commenced inquiries into privacy protocols, alongside other lawsuits and a congressional inquiry. In 2019, the United States Securities and Exchange Commission (SEC) initiated enforcement action against Facebook.

The company ultimately resolved the complaint for $100 million. Consequently, Facebook was obligated to remit a distinct penalty of $5 billion to the Federal Trade Commission of the United States.

The Securities and Exchange Commission, the federal agency overseeing fraudulent activities in the securities sector, has had its authority curtailed by prior Supreme Court rulings.

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