Supreme Court mulls Facebook bid to escape securities fraud suit

(Reuters) — The U.S. Supreme Court grappled on Wednesday over 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 its user data.

The justices heard arguments in Facebook’s appeal of a lower court’s decision allowing the 2018 class action led by Amalgamated Bank to proceed. It is one of two cases coming before them this month, the other one involving artificial intelligence chipmaker Nvidia on Nov. 13, that could lead to rulings making it harder for private litigants to hold companies to account for alleged securities fraud.

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.

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,” Conservative Chief Justice John Roberts told Kevin Russell, a lawyer for the shareholders.

But conservative Justice Clarence Thomas pressed Kannon Shanmugam, the lawyer for Facebook, 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,” Justice Thomas said.

“So why wouldn’t one be able to read this and assume that it never happened?” Justice Thomas asked.

The Facebook lawyer 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 U.S. presidential campaign in 2016. The suit seeks unspecified monetary damages in part to recoup the lost value of the Facebook stock held by the investors.