US Supreme Court Weighs Facebook Shareholder Lawsuit Over Cambridge Analytica Scandal

The US Supreme Court is considering whether a shareholder lawsuit against Meta (formerly Facebook) concerning the Cambridge Analytica scandal will proceed. Jai Vijayan, reporting in DarkReading, says shareholders allege that Facebook misled investors by failing to disclose that a major data breach had already occurred, portraying such risks as hypothetical.

The lawsuit stems from the 2015 Cambridge Analytica incident, where Facebook user data was improperly harvested to create voter profiles for the Trump campaign. News of the breach emerged in 2018, triggering significant regulatory and public backlash.

Facebook paid the Federal Trade Commission (FTC) a $5 billion fine in 2019 and implemented stricter data privacy measures. Shareholders, led by Amalgamated Bank, filed suit alleging that Facebook’s omission of the breach from its risk disclosures misled investors, causing financial losses. The Ninth Circuit overturned a lower court ruling, allowing the case to proceed.

Facebook’s counsel argued that forward-looking risk disclosures are not inherently misleading if they omit past events, emphasizing the hypothetical nature of such statements.

The plaintiffs countered that omitting known major breaches created a false impression of hypothetical risk, advocating for clarity that past breaches had occurred. Justices highlighted the contextual nature of risk disclosures, agreeing that omitting significant past incidents could mislead investors, depending on the circumstances.

The case underscores the importance of precise and transparent corporate disclosures, especially regarding material risks. Legal counsel should ensure clients understand their obligations to disclose past events to avoid allegations of misleading statements. It also illustrates the scrutiny courts apply to the framing and implications of corporate risk communications.