Facebook asks US supreme court to dismiss fraud suit over Cambridge Analytica scandal | Facebook

The US supreme court grappled on Wednesday with a bid by Meta’s Facebook to scuttle a federal securities fraud lawsuit brought by shareholders who accused the social media platform of misleading them about the misuse of user data.

The justices heard arguments in Facebook’s appeal of a lower court’s decision allowing the 2018 class action suit led by Amalgamated Bank to proceed. The suit seeks unspecified monetary damages in part to recoup the lost value of the Facebook stock held by the investors. It is one of two cases coming before them this month – the other one involving artificial intelligence chipmaker Nvidia on 13 November – that could lead to rulings making it harder for private litigants to hold companies to account for alleged securities fraud.

At issue is whether Facebook broke the law when it failed to detail the prior data breach in subsequent business-risk disclosures, and instead portrayed the risk of such incidents as purely hypothetical.

Facebook argued in a supreme court brief that it was not required to reveal that its warned-of risk had already materialized because “a reasonable investor” would understand risk disclosures to be forward-looking statements.

“When we think about these questions, we’re not looking only to lies or complete false statements,” the liberal justice Elena Kagan told Kannon Shanmugam, the lawyer for Facebook. “We’re also looking to misleading statements or misleading omissions.“

The conservative justice Samuel Alito asked Shanmugam: “Isn’t it the case that an evaluation of risks is always forward-looking?”

“It is. And that is essentially what underlies our argument here,” Shanmugam responded.

The plaintiffs accused Facebook of misleading investors in violation of the Securities Exchange Act, a 1934 federal law that requires publicly traded companies to disclose their business risks. They claimed the company unlawfully withheld information from investors about a 2015 data breach involving British political consulting firm Cambridge Analytica that affected more than 30 million Facebook users.

Edward Davila, a US district judge, dismissed the lawsuit but the San Francisco-based ninth US circuit court of appeals revived it. The supreme court’s ruling is expected by the end of June.

The Cambridge Analytica data breach prompted US government investigations into Facebook’s privacy practices, various lawsuits and a US congressional hearing. The US Securities and Exchange Commission in 2019 brought an enforcement action against Facebook over the matter, which the company settled for $100m. Facebook paid a separate $5bn penalty to the US Federal Trade Commission over the issue.

The supreme court has a 6-3 conservative majority. Some of the conservative justices seemed to indicate that reasonable investors would read statements in forward-looking risk-factor disclosures as outlining issues that may have occurred in the past.

“For example, if you’re leaving my house and I say, ‘You might slip on the steps,’ you wouldn’t say, ‘Well, that’s never happened before.’ Your inference would be: that has happened and that’s why I’m giving you the warning,” John Roberts, the conservative chief justice, told Kevin Russell, a lawyer for the shareholders.

But the conservative justice Clarence Thomas pressed Shanmugam, on whether the company’s risk statement was misleading.

“The problem is that the reasonable person could look at the statement and assume that, because it only talks about future probabilities of this harm or this event occurring, that it never occurred,” Thomas said. “So why wouldn’t one be able to read this and assume that it never happened?”

Shanmugam replied: “We don’t think that a reasonable person would draw that inference from a statement of this variety. Where a statement says ‘if something occurs, harm may follow from that’ – I don’t think it’s a necessary premise of that statement that the event has never occurred.”

Facebook’s stock fell following 2018 media reports that Cambridge Analytica had used improperly harvested Facebook user data in connection with Donald Trump’s successful US presidential campaign in 2016.