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Lower court let suit led by Amalgamated Bank ( AMAL ) proceed

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Supreme Court to hear similar Nvidia ( NVDA ) case on Nov. 13

By John Kruzel

WASHINGTON, Nov 6 (Reuters) - The U.S. Supreme Court is

set on Wednesday to consider 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 will hear arguments in Facebook's appeal of a lower

court's decision allowing the 2018 class action led by

Amalgamated Bank ( AMAL ) to proceed. It is one of two cases

coming before them this month - the other one involving

artificial intelligence chipmaker Nvidia ( NVDA ) - 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.

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.

At issue is whether Facebook broke the law when it failed to

detail the prior data breach in subsequent business-risk

disclosures, and instead portrayed the risk of such incidents as

purely hypothetical.

Facebook argued in a Supreme Court brief that it was not

required to reveal that its warned-of risk had already

materialized because "a reasonable investor" would understand

risk disclosures to be forward-looking statements.

U.S. District Judge Edward Davila dismissed the lawsuit in

2021 but the San Francisco-based 9th U.S. Circuit Court of

Appeals in a 2-1 ruling revived it in 2023.

"The problem is that Facebook represented the risk of

improper access to or disclosure of Facebook user data as purely

hypothetical when that exact risk had already transpired," Judge

Margaret McKeown wrote in the 9th Circuit decision.

A ruling by the Supreme Court is expected by the end of

June.

The Cambridge Analytica data breach prompted U.S. government

investigations into Facebook's privacy practices, various

lawsuits and a U.S. congressional hearing at which Meta Chief

Executive Mark Zuckerberg was grilled by lawmakers.

The U.S. Securities and Exchange Commission in 2019 brought

an enforcement action against Facebook over the matter, which

the company settled for $100 million. Facebook paid a separate

$5 billion penalty to the U.S. Federal Trade Commission over the

Cambridge Analytica issue.

The Supreme Court on Nov. 13 is due to hear arguments in

Nvidia's ( NVDA ) similar appeal to avoid a securities class action

accusing it of misleading investors about how much of its sales

went to the volatile cryptocurrency industry.

The Supreme Court in prior rulings has limited the authority

of the SEC, the federal agency that polices securities fraud.

Its rulings in the Facebook and Nvidia ( NVDA ) cases now could make it

more difficult for private litigants to hold companies liable

for such conduct.