Supreme Court to Review Meta's Investor Lawsuit Over Data Harvesting

US Supreme Court to Decide Fate of Meta Shareholder Lawsuit

The United States Supreme Court has agreed to review a significant shareholder lawsuit against Meta Platforms Inc., formerly known as Facebook. The case revolves around allegations that the company misled investors concerning the data-harvesting scandal linked to Cambridge Analytica, a political consulting firm.

The Core Issue

The central question at hand is whether a federal appeals court erred in permitting the lawsuit to proceed. Investors claim that Facebook inflated its share prices by inadequately disclosing the risks of its user data being misused. The revelations regarding the scandal are believed to have caused two major price drops in 2018, cumulatively wiping out more than $200 billion from Meta’s market capitalization.

Importance of Corporate Disclosure

This legal battle could have broader implications for corporate disclosure rules. Business entities, led by the Chamber of Commerce, have advocated for the Supreme Court to hear the case, arguing that overzealous risk-disclosure allegations have led to numerous baseless securities-fraud lawsuits. Since 2005, the Securities and Exchange Commission mandates that companies disclose any significant factors that would render an investment risky.

Timeline of the Scandal

The first signs of the Cambridge Analytica controversy surfaced in December 2015, when The Guardian reported the firm was utilizing Facebook user data to assist Senator Ted Cruz’s presidential primary campaign. Although Facebook claimed it was investigating at the time, shareholders assert that the company quickly realized over 30 million users' private information had been obtained without consent. However, Facebook allegedly continued to downplay the risk publicly until March 2018, when it issued a statement to preempt forthcoming exposés by The New York Times and The Guardian.

Impact on Market Value

The shareholders argue that public disclosure of the data breach led to a substantial plunge in share prices, eliciting widespread shock and anger. Further, they contend that Facebook’s insufficient disclosures contributed to a massive stock drop in July 2018, marking the largest single-day value loss in US history at that time.

Legal Arguments

The 9th US Circuit Court of Appeals ruled in favor of allowing the lawsuit to move forward based on these allegations. Meta, however, counters that there was no reason to believe the scandal would inflict lasting damage on the company, noting that previously published details had not affected the stock price. Meta also argues that the 9th Circuit’s decision misinterprets the nature of risk and falsity, contradicting Congress's objectives to curb private securities lawsuits.

Should Meta fail to prevent the case from going to trial, the company might face a potential $2 billion settlement. The Supreme Court is slated to hear arguments and issue a ruling in its term starting in October. The case is officially titled Facebook v. Amalgamated Bank, 23-980.