US Supreme Court To Hear Facebook Shareholder Suit Appeal

The US Supreme Court has agreed to hear a case by Meta Platforms subsidiary Facebook in its effort to dismiss a shareholder lawsuit that accused the company of misleading investors over the Cambridge Analytica data-sharing scandal in 2017 and 2018.

The suit alleges that long after the data breach became known to Facebook leadership, the company continued to mention the possible harm from such a breach in hypothetical terms in documents such as regulatory filings.

The court’s decision, expected next year, could redefine standards for the disclosure of damaging information in such Securities and Exchange Commission (SEC) filings.

Facebook agreed in 2019 to pay $5.1 billion (£4bn) in civil penalties to settle charges by the Federal Trade Commission (FTC) and the SEC over the scandal and paid more than $725m to settle a separate class-action lawsuit by users.

Data access scandal

The shareholder lawsuit was brought in California by investors led by Amalgamated Bank in 2018 after Facebook’s share price dropped following reports that political consultancy Cambridge Analytica had improperly accessed millions of users’ data in connection with Donald Trump’s successful 2016 presidential bid.

The data of as many as 87 million users were involved.

The plaintiffs modified the lawsuit later in the year to reflect a second share price drop on reports Facebook had shared user data with dozens of third parties without proper user consent.

The suit, which seeks unspecified monetary damages, alleges Facebook leadership knew of Cambridge Analytica’s improper data access as far back as 2015.

Corporate risk

US District Judge Edward Davila dismissed the lawsuit in 2021 but it was later restored by the 9th US Circuit Court of Appeals.

“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,” wrote Judge Margaret McKeown in the latter decision.

Facebook said the 9th Circuit’s decision would “force public companies to inform investors of past incidents that pose no known threat to the business”.