Class Action Stems from Cambridge Analytica Data Breach
The U.S. Supreme Court on Friday refrained from ruling on a pivotal securities fraud case against Facebook, now known as Meta, accused of misleading investors about data misuse on its platform. The justices dismissed Facebook’s appeal of a lower court decision allowing the 2018 class action, led by Amalgamated Bank, to proceed. This action effectively upholds the lower court’s ruling while leaving the underlying legal dispute unresolved.
The Court issued a brief, one-line order without explanation, declining to take up the case.
Background of the Lawsuit
The lawsuit alleges that Facebook failed to disclose a 2015 data breach involving Cambridge Analytica, a British political consulting firm, which impacted over 30 million users. Shareholders argue the company violated the Securities Exchange Act of 1934 by not informing investors of the breach and instead presenting such risks as purely hypothetical in its disclosures.
The controversy intensified in 2018 after reports revealed that Cambridge Analytica used improperly obtained Facebook data to support Donald Trump’s 2016 presidential campaign. The revelations caused Facebook’s stock to plummet, prompting investors to seek damages for the lost value of their holdings.
Legal Arguments
The plaintiffs contend that Facebook deliberately concealed the breach to mislead investors. Conversely, Facebook argued that its disclosures about potential risks were forward-looking statements and that it was not obligated to detail past incidents.
Lower Court Rulings
Initially, U.S. District Judge Edward Davila dismissed the case, but the Ninth U.S. Circuit Court of Appeals later reinstated it. The revival of the lawsuit has now been allowed to stand following the Supreme Court’s dismissal of Facebook’s appeal.
Broader Implications
The Cambridge Analytica incident led to widespread fallout for Facebook, including U.S. government investigations, lawsuits, and hearings in Congress. In 2019, Facebook settled an enforcement action with the Securities and Exchange Commission (SEC) for $100 million and paid an additional $5 billion penalty to the Federal Trade Commission over privacy violations.
This case was one of two securities fraud disputes reviewed by the Supreme Court this month. A separate case involving Nvidia, an artificial intelligence chipmaker, remains undecided.
Federal Government’s Role
The Biden administration backed the shareholders in the Facebook lawsuit. However, the Supreme Court’s recent decisions have shown a trend of limiting the authority of the SEC, the primary federal body overseeing securities fraud
