Meta Must Face Investor Suit After Supreme Court Drops Case

The U.S. Supreme Court dismissed an appeal by Meta Platforms Inc., leaving it to face a multibillion-dollar lawsuit that accuses the company of misleading shareholders about the data-harvesting scandal involving political consulting firm Cambridge Analytica.

Investors claim the company, then known as Facebook, inflated share prices through misleading disclosures about the risk of the scandal leading to the misuse of user data. The shareholders say revelations about the breach eventually contributed to two 2018 price drops that cost the company more than $200 billion in market value.

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Meta was seeking reversal of a federal appeals court decision that had let the lawsuit go forward. The Supreme Court agreed to consider the appeal in June and heard arguments on Nov. 6.

The court occasionally drops cases after argument. As is its usual practice, the court provided no explanation, saying only that the case was being “dismissed as improvidently granted.”

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The dismissal makes it more likely Meta will face a costly settlement — potentially as large as $2 billion — according to Matthew Schettenhelm, an analyst for Bloomberg Intelligence. A Meta victory at the Supreme Court would have knocked out some though not all of the case against the company.

“The plaintiff’s claims are baseless and we will continue to defend ourselves as this case is considered by the district court,” Meta said in a statement. “We are disappointed in the Supreme Court’s decision not to clarify this part of the law.”

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The attorney for the investors, Kevin Russell, declined to comment.

The case more broadly had the potential to reset the legal rules governing corporate disclosure. Business groups led by the Chamber of Commerce had urged the court to side with Meta, saying that risk-disclosure allegations have contributed to a wave of meritless securities-fraud suits.

The Securities and Exchange Commission since 2005 has required companies to disclose material factors that would make an investment risky.

The Supreme Court is also considering an appeal by AI chipmaker Nvidia Corp., which is being sued for allegedly misleading shareholders about its reliance on crypto-mining revenue in the run-up to a market crash.

Cambridge Analytica

The first hint of the Cambridge Analytica controversy came in December 2015, when The Guardian reported that the British firm was using a database of information gleaned from Facebook users to help the presidential primary campaign of Senator Ted Cruz. At the time, Facebook said it was investigating.

The suing shareholders say Facebook quickly concluded that Cambridge Analytica had obtained the private information of more than 30 million users without their consent.

But the shareholders say the company publicly characterized the risk of a breach as hypothetical and didn’t change that stance until March 2018, when it issued a statement to preempt more far-reaching stories in The New York Times and The Guardian. The investors say those revelations caused the share price to plunge.

The shareholders say the company’s inadequate disclosures also contributed to a July 2018 stock plunge that at the time was the largest one-day drop in value in US history.

The 9th US Circuit Court of Appeals ruled that the allegations were sufficient to let the lawsuit go forward.

Meta said it had no reason to think the scandal would harm the company because details had already been published without any impact on the stock price. Meta said the 9th Circuit’s reasoning would require companies to disclose risks that occurred years earlier even if they don’t pose any known current threat of business harm.

The Biden administration backed the shareholders at the Supreme Court.

The case is Facebook v. Amalgamated Bank, 23-980.

Top photo: The Facebook logo is seen on a laptop arranged in Hastings-on-Hudson, New York, US, on Wednesday, Feb.1, 2023. Photographer: Tiffany Hagler-Geard / Bloomberg.