Facebook asks US Supreme Court to dismiss fraud lawsuit over Cambridge Analytica scandal | Facebook

The U.S. Supreme Court on Wednesday grappled with an attempt by Meta's Facebook to fend off a federal securities fraud lawsuit from shareholders who accused the social media platform of misleading them about its misuse of user data.

The justices heard arguments in Facebook's appeal of a lower court's ruling that allowed the 2018 class action lawsuit led by Amalgamated Bank to proceed. The lawsuit seeks unspecified damages, in part to offset the loss in value of Facebook shares held by investors. It's one of two cases before them this month – the other involving artificial intelligence chip maker Nvidia on Nov. 13 – that could result in rulings that make it harder for private litigants to hold companies accountable for alleged securities fraud .

At issue is whether Facebook broke the law when it failed to explain the previous 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 disclose that the warned risk had already materialized because “a reasonable investor” would interpret risk disclosures as forward-looking statements.

“When we think about these questions, we don't just look at lies or outright false statements,” liberal Justice Elena Kagan told Kannon Shanmugam, Facebook's attorney. “We also monitor for misleading statements or misleading omissions.”

Conservative Justice Samuel Alito asked Shanmugam: “Isn’t it the case that a risk assessment is always forward-looking?”

“It is. And that is essentially the basis of our argument here,” Shanmugam replied.

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 alleged 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 U.S. district judge, dismissed the lawsuit, but the San Francisco-based Ninth U.S. Circuit Court of Appeals reinstated it. The Supreme Court's ruling is expected at the end of June.

The Cambridge Analytica data breach led to US government investigations into Facebook's privacy practices, various lawsuits and a US Congressional hearing. The U.S. Securities and Exchange Commission filed an enforcement action against Facebook over the matter in 2019, which settled the company for $100 million. Facebook paid a separate fine of $5 billion to the US Federal Trade Commission in connection with this.

The Supreme Court has a 6-3 conservative majority. Some of the conservative justices appeared to suggest that reasonable investors would interpret statements in forward-looking risk factor disclosures to describe problems that may have occurred in the past.

“For example, if you were leaving my house and I said, 'You might slip on the stairs,' you wouldn't say, 'That's never happened before.' Your conclusion would be: This is what happened and that's why I'm warning you,” John Roberts, the conservative chief justice, told Kevin Russell, a lawyer for the shareholders.

But 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 it never occurred because it is only about future probabilities of that harm or that event occurring,” Thomas said. “So why shouldn’t you read this and assume it never happened?”

Shanmugam replied: “We do not believe that a reasonable person would draw that conclusion from a statement of this nature.” When a statement says, “If something happens, harm may result from it” – I don't think it is a necessary premise of that The statement is that the event never occurred.”

Facebook shares fell after media reports in 2018 that Cambridge Analytica had used unlawfully collected Facebook user data in connection with Donald Trump's successful 2016 US presidential election campaign.