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Meta Gets Supreme Court Review on Investor Data-Harvesting Suit

In Technology
June 10, 2024

(Bloomberg) — The US Supreme Court agreed to consider killing a multibillion-dollar shareholder lawsuit that accuses Meta Platforms Inc. of misleading investors about the data-harvesting scandal involving political consulting firm Cambridge Analytica.

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The justices said Monday they will decide whether a federal appeals court was wrong to let the lawsuit go forward based on allegations that the company, then known as Facebook, inflated share prices by inadequately disclosing the risk that its user data would be misused.

The investors say revelations about the scandal contributed to two 2018 price drops that cost the company more than $200 billion in market capitalization.

The case could reset the legal rules governing corporate disclosure. Business groups led by the Chamber of Commerce urged the court to take up the case, saying that risk-disclosure allegations “have contributed to a wave of meritless securities-fraud suits.”

The Securities and Exchange Commission since 2005 has required companies to disclose material factors that would make an investment risky.

The first hint of the Cambridge Analytica controversy came in December 2015, when The Guardian reported that the British firm was using a database of information gleaned from Facebook users to help the presidential primary campaign of Senator Ted Cruz. At the time, Facebook said it was investigating.

The suing shareholders say Facebook quickly concluded that Cambridge Analytica had obtained the private information of more than 30 million users without their consent.

‘Shock and Fury’

But the shareholders say the company publicly characterized the risk of a breach as hypothetical and didn’t change that stance until March 2018, when it issued a statement to preempt more far-reaching stories in The New York Times and The Guardian. The investors say those revelations caused the share price to plunge.

“The public reacted with shock and fury,” they argued in court papers. “Many expressed dismay that Facebook had been aware of the breach for years but failed to disclose it to the public or affected users.”

The shareholders say the company’s inadequate disclosures also contributed to a July 2018 stock plunge that at the time was the largest one-day drop in value in US history.

The 9th US Circuit Court of Appeals said the allegations were sufficient to let the lawsuit go forward.

Meta says it didn’t have any reason to think the scandal would harm the company because details had already been published without any impact on the stock price. Meta says the 9th Circuit’s reasoning would require companies to disclose risks that occurred years earlier even if they don’t pose any known current threat of business harm.

“The 9th Circuit’s rule reflects a misguided conception of falsity and the nature of risk, and it flies in the face of Congress’s efforts to rein in private securities lawsuits,” Meta argued.

The company could face a $2 billion settlement if it can’t keep the case from going to trial, according to Matthew Schettenhelm, an analyst for Bloomberg Intelligence.

The high court will hear arguments and rule in the nine-month term that starts in October.

The case is Facebook v. Amalgamated Bank, 23-980.

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