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Trial centers on alleged data privacy violations by Meta

leaders

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Meta shareholders seek over $8 billion in damages

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Defendants say they took steps to protect user privacy

(Updates with trial starting with first witness in paragraphs

2-3, background in paragraphs 14-17)

By Tom Hals

WILMINGTON, Delaware, July 16 (Reuters) - An $8 billion

trial by Meta Platforms ( META ) shareholders against Mark

Zuckerberg and other current and former company leaders kicked

off on Wednesday over claims they illegally harvested the data

of Facebook users in violation of a 2012 agreement with the U.S.

Federal Trade Commission.

The trial started with a privacy expert for the plaintiffs,

Neil Richards of Washington University Law School, who testified

about Facebook's data policies.

"Facebook's privacy disclosures were misleading," he told

the court.

Jeffrey Zients, White House chief of staff under President Joe

Biden and a Meta director for two years starting in May

2018, is expected to take the stand later on Wednesday in the

non-jury trial before Kathaleen McCormick, chief judge of the

Delaware Chancery Court.

The case will feature testimony from Zuckerberg and other

billionaire defendants including former Chief Operating Officer

Sheryl Sandberg, venture capitalist and board member Marc

Andreessen as well as former board members Peter Thiel, Palantir

Technologies ( PLTR ) co-founder, and Reed Hastings, co-founder

of Netflix ( NFLX ).

A lawyer for the defendants, who have denied the allegations,

declined to comment.

McCormick, the judge who

rescinded

Elon Musk's

$56 billion Tesla pay package last year, is expected to

rule on liability and damages months after the trial concludes.

The case began in 2018, following revelations that data from

millions of Facebook users was accessed by Cambridge

Analytica, a now-defunct political consulting firm that worked

for Donald Trump's successful U.S. presidential campaign in

2016.

The FTC fined Facebook $5 billion in the wake of the

Cambridge Analytica scandal, saying the company had violated a

2012 agreement with the FTC to protect user data.

Shareholders want the defendants to reimburse Meta for the

FTC fine and other legal costs, which the plaintiffs estimate

total more than $8 billion.

In court filings, the defendants described the allegations

as "extreme" and said the evidence at trial will show Facebook

hired an outside consulting firm to ensure compliance with the

FTC agreement and that Facebook was a victim of Cambridge

Analytica's deceit.

Meta, which is not a defendant, declined to comment. On its

website, the company has said it has invested billions of

dollars into protecting user privacy since 2019.

The lawsuit is considered the first of its kind to go to trial

that alleges that board members consciously failed to oversee

their company. Known as a Caremark claim, such lawsuits are

often described as the hardest to prove in Delaware corporate

law. However, in recent years, Delaware courts have allowed a

growing number of these claims to proceed.

Boeing's ( BA ) current and former board members settled a case with

similar claims in 2021 for $237.5 million, the largest ever in

an alleged breach of oversight lawsuit. The Boeing ( BA ) directors did

not admit to wrongdoing.

The Meta trial comes four months after Delaware lawmakers

overhauled the state's corporate law to make it harder for

shareholders to challenge deals struck with controlling

shareholders like Zuckerberg. The bill, which did not address

Caremark claims, was drafted after the state's governor met with

representatives of Meta.

Most publicly traded companies are incorporated in the

state, which generates more than a quarter of the state's budget

revenue. Meta, which was reportedly considering leaving Delaware

earlier this year, is still incorporated in the state.

Andreessen Horowitz, the venture capital fund co-founded by

Andreessen,

said

earlier this month that it was reincorporating in

Nevada

from Delaware and encouraged other companies to do the

same. The company cited the uncertainty of the state's courts

and referenced the Musk pay ruling.

Andreessen is expected to testify on Thursday.

In addition to privacy claims at the heart of the Meta case,

plaintiffs allege that Zuckerberg anticipated that the Cambridge

Analytica scandal would send the company's stock lower and sold

his Facebook shares as a result, pocketing at least $1 billion.

Defendants said evidence will show that Zuckerberg did not

trade on inside information and that he used a stock-trading

plan that removes his control over sales and is designed to

guard against insider trading.