Key Points
- Shareholders claim Meta misled investors by failing to disclose the 2015 Cambridge Analytica data breach.
- The U.S. Supreme Court Court declined to intervene in the shareholder lawsuit, leaving a lower court’s decision intact.
- The breach affected over 30 million users and contributed to a sharp decline in Meta’s stock value.
- Meta settled with the SEC for $100 million and paid the FTC $5 billion over the incident.
On Friday, the U.S. Supreme Court declined to rule on whether shareholders could move forward with a securities fraud lawsuit against Meta Platforms, Inc. (formerly Facebook), leaving in place a lower court’s decision that allowed the 2018 class action lawsuit to proceed. The lawsuit accuses Meta of misleading investors about misusing user data concerning the Cambridge Analytica scandal.
The Supreme Court dismissed Meta’s appeal in a brief, one-line order without explaining its decision. The decision maintains the 9th U.S. Circuit Court of Appeals ruling, which revived the case after U.S. District Judge Edward Davila initially dismissed it.
The case stems from allegations that Meta violated the Securities Exchange Act of 1934 by failing to disclose a 2015 data breach involving Cambridge Analytica, a British political consulting firm. This breach exposed the personal information of over 30 million Facebook users, and media reports in 2018 revealed that Cambridge Analytica used improperly harvested data to assist Donald Trump’s 2016 U.S. presidential campaign.
Plaintiffs, led by Amalgamated Bank, claim that Meta’s failure to disclose this breach in its business-risk statements misled investors, portraying the risk of data misuse as a hypothetical scenario rather than an event that had already occurred. Facebook’s stock price dropped significantly after the breach was reported, leading shareholders to seek monetary damages for their losses.
Meta argues that its disclosures were forward-looking statements that adequately warned of potential risks and that it was not legally required to report the 2015 breach retroactively. Company spokesperson Andy Stone expressed disappointment with the Supreme Court’s decision, calling the claims baseless and vowing continued defense in lower courts.
The lawsuit represents one of several legal challenges Meta has faced over the Cambridge Analytica incident, including government investigations, congressional hearings, and enforcement actions. In 2019, the company settled with the U.S. Securities and Exchange Commission (SEC) for $100 million and paid a $5 billion penalty to the Federal Trade Commission (FTC).
The Supreme Court’s decision not to hear the case shifts focus back to the lower courts, where plaintiffs are expected to pursue discovery, and Meta may renew its motion to dismiss.
