Supreme Court hears Facebook’s bid to toss shareholder suit over Cambridge Analytica scandal

The US Supreme Court heard arguments connected Wednesday successful a bid by Meta’s Facebook to scuttle a federal securities fraud lawsuit brought by shareholders who accused nan societal media level of misleading them astir nan misuse of its personification data.

Facebook appealed a little court’s determination allowing nan 2018 people action led by Amalgamated Bank to proceed. It is 1 of 2 cases coming earlier them this period – nan different 1 involving artificial intelligence chipmaker Nvidia — that could lead to rulings making it harder for backstage litigants to hold companies to account for alleged securities fraud.

The arguments were ongoing.

The plaintiffs accused Facebook of misleading investors successful usurpation of nan Securities Exchange Act, a 1934 national rule that requires publically traded companies to disclose their business risks. They claimed nan institution unlawfully withheld accusation from investors astir a 2015 information breach involving British governmental consulting patient Cambridge Analytica that affected much than 30 million Facebook users.

Conservative Justice Clarence Thomas pressed Kannon Shanmugam, nan lawyer for Facebook, connected whether nan company’s consequence connection was misleading.

“The problem is that nan reasonable personification could look astatine nan connection and presume that, because it only talks astir early probabilities of this harm aliases this arena occurring, that it ne'er occurred,” Thomas said.

“So why wouldn’t 1 beryllium capable to publication this and presume that it ne'er happened?” Thomas asked.

Shanmugam replied, “We don’t deliberation that a reasonable personification would tie that conclusion from a connection of this variety. Where a connection says ‘if thing occurs, harm whitethorn travel from that’ – I don’t deliberation it’s a basal premise of that connection that nan arena has ne'er occurred.”

Facebook’s banal fell pursuing 2018 media reports that Cambridge Analytica had utilized improperly harvested Facebook user information successful relationship with Donald Trump’s successful statesmanlike run successful 2016. The suit seeks unspecified monetary damages successful portion to recoup nan mislaid worth of the Facebook stock held by nan investors.

At rumor is whether Facebook broke nan rule erstwhile it grounded to item nan anterior information breach successful consequent business-risk disclosures, and alternatively portrayed nan consequence of specified incidents arsenic purely hypothetical.

Facebook argued successful a Supreme Court little that it was not required to uncover that its warned-of consequence had already materialized because “a reasonable investor” would understand consequence disclosures to beryllium forward-looking statements.

“When we deliberation astir these questions, we’re not looking only to lies aliases complete mendacious statements,” wide Justice Elena Kagan told Shanmugam. “We’re besides looking to misleading statements aliases misleading omissions.”

‘Always forward-looking’

Conservative Justice Samuel Alito asked Shanmugam, “Isn’t it nan lawsuit that an information of risks is ever forward-looking? Isn’t it inherently forward-looking? When you want to cognize astir what consequence you face, you want to cognize what your consequence is successful nan future, right?”

“It is. And that is fundamentally what underlies our statement here,” Shanmugam responded.

Conservative Justices Brett Kavanaugh and Neil Gorsuch asked Shanmugam whether different disclosure requirements successful regulatory filings mightiness beryllium disposable for companies to outline nan benignant of past events astatine rumor successful this case.

Conservative Chief Justice John Roberts, however, questioned Shanmugam connected nan usage of different disclosure provisions.

“Is your position fundamentally that ‘don’t interest astir half-truths'” successful disclosing nan consequence factors, “because nan basal problem is already going to beryllium disclosed nether different provisions?”

Thomas asked Kevin Russell, nan lawyer representing nan shareholders, what else Facebook should person provided successful its statement.

“So I deliberation they could person said what they said, and past said thing like, ‘Such improper disclosure aliases misuse aliases usage of information has occurred successful nan past including precocious connected a important scale,'” Russell said. “I deliberation that would person removed immoderate misimpression that an arena for illustration what happened successful Cambridge Analytica hadn’t occurred.”

US District Judge Edward Davila dismissed nan suit successful 2021 but nan San Francisco-based 9th US Circuit Court of Appeals successful a 2-1 ruling revived it successful 2023. A ruling by nan Supreme Court is expected by nan extremity of June.

The Cambridge Analytica information breach prompted US authorities investigations into Facebook’s privateness practices, various lawsuits and a legislature proceeding astatine which Meta Chief Executive Mark Zuckerberg was grilled by lawmakers.

The Securities and Exchange Commission successful 2019 brought an enforcement action against Facebook over nan matter, which nan institution settled for $100 million. Facebook paid a abstracted $5 cardinal punishment to nan Federal Trade Commission complete nan Cambridge Analytica issue.

The Supreme Court connected Nov. 13 is owed to perceive arguments successful Nvidia’s akin entreaty to debar a securities people action accusing it of misleading investors about really overmuch of its income went to nan volatile cryptocurrency industry.