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 Leader: Jeremy P. Robinson
Case Team: William E. Freeland, Damian Puniello

This 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.

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. 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.

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. 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. Lead Plaintiffs filed their opposition to Defendants’ motions to dismiss on February 12, 2019, and Defendants filed their replies on March 26. Oral argument on the motions to dismiss was scheduled for May 9, 2019 but was cancelled by Judge Davila.

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. On August 7, 2020, Judge Davila entered an order granting Defendants' motion to dismiss the second amended class action complaint with leave to amend, and Plaintiffs filed a third amended complaint on October 16, 2020. Defendants' motion to dismiss the third amended complaint was filed on December 18. 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. On December 20, 2021, the Court dismissed the third amended complaint with prejudice.

Plaintiffs appealed the dismissal to the Ninth Circuit Court of Appeals. On October 18, 2023, after briefing and oral argument, the Ninth Circuit reversed in part the district court’s dismissal of the third amended complaint, concluding that Plaintiffs adequately pleaded falsity as to statements warning that misuse of Facebook users’ data could harm Facebook’s business, reputation, and competitive position. The Ninth Circuit panel also concluded that Plaintiffs adequately pleaded loss causation as to certain statements assuring users that they control their content and information on Facebook’s platform.

On November 1, 2023, Defendants filed a petition for panel rehearing and rehearing en banc.