The US Supreme Court has agreed to review a multibillion-dollar shareholder lawsuit against Meta Platforms Inc. (NASDAQ:META), formerly known as Facebook, concerning allegations of misleading investors about the data-harvesting scandal involving Cambridge Analytica.
The justices announced on Monday that they will consider whether a federal appeals court erred in allowing the lawsuit to proceed. The lawsuit alleges that Facebook inflated share prices by failing to adequately disclose the risk associated with the misuse of user data.
Investors claim that revelations about the scandal led to two significant price drops in 2018, resulting in a loss of over $200 billion in market capitalization for the company.
This case has broader implications for corporate disclosure rules, with business groups urging the court to take up the matter, arguing that risk-disclosure allegations have led to an influx of meritless securities fraud suits.
Since 2005, the Securities and Exchange Commission has mandated companies to disclose material factors that could pose investment risks.
The controversy surrounding Cambridge Analytica first emerged in December 2015, when reports surfaced that the firm was using data from Facebook users for political purposes. Facebook initially stated that it was investigating the matter.
However, shareholders argue that Facebook downplayed the risk of a breach until March 2018 when it stated in response to impending stories from major news outlets. The subsequent revelations caused a sharp decline in the company’s share price.
Meta contends that it had no reason to believe the scandal would harm the company as details had already been publicized without affecting the stock price. The company asserts that the appeals court’s ruling would force companies to disclose risks that occurred years earlier, even if they pose no current threat.
If Meta fails to prevent the case from going to trial, it could face a $2 billion settlement, according to analysts.
The Supreme Court will hear arguments and issue a ruling during its nine-month term beginning in October.
The case is titled Facebook v. Amalgamated Bank, 23-980.
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