Justices are skeptical about Facebook’s disclosure to investors of its data breach
ARGUMENT ANALYSIS
on November 7, 2024
at 12:00 pm
Facebook learned for the first time that Cambridge Analytica used a personality-test app to harvest data from tens and thousands of users in 2015. (Katie Barlow).
The Justices heard arguments in Facebook v. Amalgamated Bank on Wednesday, their first securities cases of the year. The case involves the 2015 Cambridge Analytica-Facebook data breach, and considers whether Facebook’s disclosures to investors before the breach was public improperly downplayed the risks that data breaches posed to the company and its stock price.
Shareholders sued Facebook in 2018 after they learned that Cambridge Analytica had obtained the personal data of 30 million Facebook users. The shareholders conted that Facebook misled them about the risks to their investment.
Although some justices seemed more receptive to the argument of Kannon Shanmugam (representing Facebook), the dominant tone was skepticism. Justice Clarence Thomas began the headwinds in the opening minutes of the hearing, saying that “a reasonable person would assume” that Facebook had never done anything bad. Justices Sonia Sotomayor, and Ketanji brown Jackson then offered similar perspectives. To the casual observer, there are not a lot of five-justice majorities that skip over those three justices.
That’s not to say that it was all bad for Facebook. Chief Justice John Roberts, and Justice Brett Kavanaugh, were the least willing to accept that this was enough to justify a Facebook class action. Roberts felt that Facebook’s disclosure amounted to a warning that you should take care when walking down the front steps of his house, as you could fall. This statement might have implied that someone had fallen before. For him, the subjectivity of determining what a factfinder might infer from any particular disclosure made it “kind of a blank check” to “go to trial to decide” how to interpret the disclosure.
In the same vein, Kavanaugh thought it central that the Securities and Exchange Commission already has rules that require companies explicitly to disclose lots of adverse past events in various disclosures – and this is not on the list. Kavanaugh believes that it is not fair for the “judiciary… to walk on the plank” when the SEC can do it. Why not let them do it if they wish? What I would say, is that this was not an impressive day for Meta. We’ll need to wait until spring to find out what the actual decision is.
