The legal struggles surrounding Meta Platforms, Inc., commonly known as Facebook, intensified with the recent dismissal of the company’s appeal by the U.S. Supreme Court. This decision allows shareholders to proceed with their class-action lawsuit against the tech giant, stemming from the infamous Cambridge Analytica scandal.
On November 22, 2024, the Supreme Court made headlines by dismissing Meta's appeal without elaboration, simply stating, "the writ of certiorari is dismissed." This brief and unsigned ruling signifies the court's belief the case should not have come before it, leaving intact decisions from lower courts.
The roots of this controversy trace back to 2015 when Cambridge Analytica, a consulting firm, misused data harvested from Facebook users. The firm had exploited information from around 87 million Facebook accounts without user consent to craft psychological profiles aimed at influencing voters during the 2016 presidential campaigns, particularly for Donald Trump and Ted Cruz.
Shareholders are alleging they were misled about the risks associated with this substantial data breach. They claim Facebook downplayed the potential harm and didn’t adequately disclose the risks associated with its data privacy practices. This left investors with the misconception the breach’s ramifications were lesser than reality.
The class-action lawsuit follows earlier legal actions by individual Facebook users, who also accused the platform of violating privacy laws by sharing their personal data with unauthorized parties. Although Facebook has paid millions to settle related claims — such as the $725 million deal reached in late 2022 — the current shareholders’ suit opens the financial floodgates anew.
The appeal denial permits the lawsuit to move forward, enabling investors to seek damages from Facebook for misleading risk disclosures. Shareholders argue the company’s legal requirement to disclose material risks wasn’t met, allowing them to challenge Facebook over potentially fraudulent disclosures, particularly those made between February 2017 and July 2018.
Initially, the U.S. District Court dismissed the claims, concluding the allegations were unfounded, stating the scandal did not harm Facebook’s reputation sufficiently to warrant concern when the 2016 risk disclosures were made. No immediate negative impact was seen on Facebook’s stock price when the Cambridge Analytica scandal first broke. That changed dramatically after revelations surfaced about the extent of the data misuse.
While Facebook originally forecasted security breaches as hypothetical potential risks, shareholders argue this was misleading as those risks had already been materialized through the scandal. The 9th Circuit Court of Appeals allowed the lawsuit to proceed, prompting Meta's subsequent appeal to the Supreme Court.
Facebook contended the appellate decision created excessive new requirements for risk disclosures, potentially leading to lawsuits based on “fraud-by-hindsight,” where past behavior is retroactively judged under the lens of current knowledge. Facebook asserted there’s no uniform standard on how public companies must disclose past incidents, complicates the legal obligations across various circuits.
While the Supreme Court’s ruling offers closure for some aspects of the case, the controversy surrounding Meta’s data practices continues. The Biden administration had previously backed the shareholders’ position, arguing it’s misleading for companies to imply previously manifested risks remain hypothetical.
With Facebook’s stock showing slight declines post-ruling, dropping approximately 1.17% shortly after news broke, the company faces not only the uncertainty of potential damages but also the broader reputational harm. Despite current market fluctuations, Meta has performed strongly over the year, demonstrating resilience, with shares climbing significantly overall.
Industry analysts maintain varied outlooks on Meta’s stock as the legal battles weigh on investor sentiment. Currently rated as a Strong Buy based on consensus estimates, the potential for future liabilities and the outcome of other litigation contribute to continued volatility surrounding Meta Platforms’ shares.
The dismissal of Meta's appeal stands as a reminder of the significant repercussions of data privacy practices within the tech industry. The case continues to evolve, reflecting broader discussions about corporate responsibility and consumer rights, particularly within platforms handling vast amounts of personal data. Investors and users alike are keeping close tabs on developments as the situation around Meta’s data management and its ramifications play out.
