In re Facebook, Inc. Securities Litigation

Court: United States District Court for the Northern District of California
Case Number: 5:18-cv-01725-EJD
Class Period: 02/03/2017 - 07/25/2018
Case Leaders: John C. Browne, Jeremy P. Robinson
Case Team: Kate Aufses, Alexander T. Payne, William E. Freeland, Damian Puniello

The Facebook Securities Litigation is a securities class action brought on behalf of investors in Facebook, Inc. (“Facebook” or the “Company”), which is pending in the Northern District of California before the Honorable Edward J. Davila. The action seeks to recover damages against Facebook and certain officers and/or directors (the “Facebook Defendants”) for violations of the Securities Exchange Act of 1934. This action is brought on behalf of all persons who purchased Facebook common stock between February 3, 2017 and July 25, 2018, inclusive.

The case arises from Defendants’ allegedly materially false and misleading statements and/or omissions concerning Facebook’s user privacy and data protection practices, including its compliance with a 2012 consent decree with the Federal Trade Commission (“FTC”) concerning Facebook’s “unfair and deceptive” user privacy practices, and the impact of those practices on Facebook’s business operations and financial results, including inter alia user numbers, revenue, income, operating margins and growth.

Beginning on March 17, 2018, a series of media reports revealed that, contrary to Facebook’s Class Period representations to investors, the Company had violated its own privacy and data protection policies, including by improperly allowing a political strategy firm named Cambridge Analytica to misappropriate, use and retain the personal data of tens of millions of Facebook users. Among other things, Cambridge Analytica improperly accessed Facebook users’ data without their knowledge or consent and targeted users with personally tailored political messages. Revelations of Facebook’s misconduct sparked numerous government investigations, including by the FTC for violations of the 2012 consent decree, the Securities and Exchange Commission (the “SEC”) and other government agencies. They also caused the price of Facebook’s stock to decline from $185.09 per share to $168.15 per share between March 16, 2018 and March 20, 2018, erasing approximately $30 billion in shareholder value.

Then, on July 25, 2018, Facebook revealed additional information concerning the alleged securities violations at the heart of this case, including details of the extent and impact of Facebook’s privacy-related misconduct which had caused a slowdown in growth, declining numbers of daily and monthly active users, and increasing expenses. That day, Facebook held its earnings call for the second quarter of 2018. Defendant CEO Zuckerberg opened the call with a discussion of the Company’s dramatic investment “to improve safety, security and privacy,” noting both a “decline in monthly actives in Europe – down by about 1 million people” and the need to “invest heavily in security and privacy … [that] will significantly impact our profitability.” Defendant CFO David Wehner also revealed Facebook’s decelerating revenue growth, which he said was pressured by user “choices around data privacy,” and its ballooning expenses, which were “driven by increasing investments in areas like [data] safety & security.”

Facebook’s July 25, 2018 disclosures caused a 24% drop in Facebook’s share price, wiping out approximately $120 billion in shareholder value. In the following days, Facebook’s July 25 disclosures were tied directly to its alleged privacy-related misconduct. For example, The Washington Post reported that the “cost of years of privacy missteps finally caught up with Facebook,” while another analyst noted that “Cambridge [Analytica] has thrown in a whole host of worries around confidence for users, advertisers, and regulators.”

During the same time period and in connection with the above events, the departures of several Facebook executives were announced, including former Chief Security Officer, Alex Stamos, Head of Communications and Policy, Elliot Schrage, and Chief Legal Officer, Colin Stretch.

On August 3, 2018, the Public Employees’ Retirement System of Mississippi, was appointed Co-Lead Plaintiff in the Facebook Securities Litigation and BLB&G LLP was appointed Co-Lead Counsel, and on October 15, 2018 Plaintiffs filed a Consolidated Class Action Complaint for Violation of the Federal Securities Laws.

On October 5, 2018, the Court issued an Order consolidating several subsequently filed actions with the ongoing Facebook Securities Litigation and setting the deadline for Lead Plaintiffs to file their consolidated amended complaint. Consistent with the Court’s Order, Lead Plaintiffs filed their complaint on October 15. Defendants filed their motions to dismiss on December 14, 2018. 

On September 25, 2019, Judge Davila granted Defendants’ motion to dismiss in full but gave Plaintiffs' leave to amend the complaint. Plaintiffs filed their second amended complaint on November 15, 2019. Defendants’ motion to dismiss will be filed on January 15, 2020, Plaintiffs' opposition will be due March 16, 2020, and Defendants' reply will be due on April 24, 2020. Oral argument was scheduled for July 16, 2020. On August 7, 2020, Judge Davila entered an order granting Defendants' motion to dismiss the second amended class action complaint with leave to amend. Our third amended complaint was filed on October 16, 2020. Defendants' motion to dismiss the third amended complaint will be due December 18, 2020. Plaintiffs filed an opposition to Defendants’ motion to dismiss on February 19, 2021, and Defendants filed a reply in support of their motion on April 5, 2021.