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June 10, 2024 – 7:17 AM PDT
WASHINGTON (Reuters) – The U.S. Supreme Court agreed on Monday to hear a bid by Meta’s (META.O) Facebook to scuttle a private securities fraud lawsuit accusing the social media platform of misleading investors in 2017 and 2018 about the misuse of its user data by the company and third parties.
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The justices took up Facebook’s appeal of a lower court’s decision allowing a shareholder lawsuit brought in California and led by Amalgamated Bank (AMAL.O) to proceed. The court will hear the case in its next term, which begins in October.
The plaintiffs filed a class action lawsuit in 2018 after Facebook’s stock fell following media reports that the British political consulting firm Cambridge Analytica had used improperly harvested Facebook user data in connection with Donald Trump’s successful presidential campaign in 2016. The Cambridge Analytica breach exposed the data of as many as 87 million users.
The plaintiffs amended their lawsuit in 2018 to add a second stock decline that year on reports that Facebook had shared data with dozens of third parties without the express consent of users. The suit seeks unspecified monetary damages.
The plaintiffs accused Facebook and top company officials of violating the Securities Exchange Act of 1934 by making false and misleading statements in 2017 and 2018, including that user data could be compromised when the company was aware in 2015 that Cambridge Analytica had violated its privacy policies.
U.S. District Judge Edward Davila dismissed the lawsuit by the shareholders in 2021 but the San Francisco-based 9th U.S. Circuit Court of Appeals in a 2-1 ruling restored their claims.
“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,” Judge Margaret McKeown wrote in the 9th Circuit decision.
Facebook urged the justices to take up its appeal, arguing that the 9th Circuit’s ruling would “force public companies to inform investors of past incidents that pose no known threat to the business.”
The Cambridge Analytica data breach fueled government investigations into Facebook’s privacy practices, lawsuits and a U.S. congressional hearing where Meta Chief Executive Mark Zuckerberg was grilled by lawmakers.
Facebook paid more than $5 billion in penalties to U.S. authorities over the Cambridge Analytica scandal and paid $725 million to settle a separate class action lawsuit by Facebook users.
Reporting by John Kruzel; Editing by Will Dunham