In America: Facebook’s Billion Dollar Supreme Court Showdown That Nobody’s Talking About

kelly sikkema/etienne martin

The United States Supreme Court will rule on a historic case that could redefine corporate transparency. Facebook vs The Amalgamated Bank has the potential to be a landmark ruling; a group of investors and other plaintiffs are suing the Silicon Valley tech giant over mishandling an estimated 30 million users’ profiles in the run-up to the 2016 US elections. In a multi-billion-dollar court battle, the plaintiffs claim that the social media behemoth misled them by omitting to disclose the breach in its risk disclosures.

However, the repercussions of the data leak extend far beyond 2016 and the US presidential election cycle. The incident began when Cambridge Analytica, a British political polling firm, obtained personal information from more than 30 million Facebook users to develop in-depth profiles and target specific ads to alter election results after the polls closed. The affair generated severe worries about the exploitation of personal information and the possibility of manipulating public opinion.

Attorney Kevin K. Russell, on behalf of the plaintiffs, argued that Facebook's failure to disclose the data breach constituted a substantial misrepresentation, depriving investors of critical information. They dispute Facebook's claim, saying that a reasonable investor would have deemed it a serious breach while making investment decisions. This, they claim, violates federal securities laws.

Facebook, on the other hand, insists that its risk disclosures were correct and that the concealed information was not significant. They claim to have cautioned investors about the possible risks of data breaches and that the specifics of the Cambridge Analytica issue were unnecessary to reveal.

The Plaintiffs' Perspective

The plaintiffs claim that Facebook's risk disclosures were misleading because they portrayed the data breach as a hypothetical future event rather than an actual incident. They allege that the business should have revealed the breach since it was a material fact that could have influenced investors' decisions. The plaintiffs emphasise the gravity of the breach and its possible long-term impact on the company's brand and financial performance. 

As Justice Elena Kagan noted, "It's not a black-and-white thing." She emphasized the importance of context, stating, "If there’s been such substantial damage to a plant that production capacity is operating at 50 per cent, that’s going to be of interest to the investor."

The defence’s counter

Facebook contends that its risk disclosures were sufficient and that it was not required to disclose all potential risks, no matter how remote. The corporation argues that, as the major regulator of securities markets, the SEC is responsible for setting up precise disclosure obligations. Facebook further says the plaintiffs' allegations are hypothetical and lack specific evidence of genuine harm to investors.

Facebook's attorney, Kannon Shanmugam, argued for a more categorical rule, stating, "If the statement had said Meta has never experienced an episode of data misuse involving its users, but if it did, it would do harm to Meta’s business or reputation, of course, in that context, the statement would be false or misleading if there had been an episode in the past."

However, Justice Amy Coney Barrett questioned the rigidity of this approach, claiming that applying a one-size-fits-all rule was overly simplistic. Echoing Justice Kagan, she also emphasised the significance of context and believed the need for a more sophisticated approach to understanding risk disclosures.

Justice Ketanji Brown Jackson, however, took a different stance - stating, “…I'm just nervous about the suggestion that the only representation that's being … is one that relates to the past as opposed to a possible statement about the future…”  Implying the need for more transparency from Facebook.

The conclusion of this lawsuit could have far-reaching consequences for corporate governance, investor protection, and the regulation of social media businesses. A verdict favouring the plaintiffs may result in enhanced scrutiny of company disclosures and higher liability requirements. This could push businesses to be more open about their activities, including potential risks and obligations.

However, based on the position that Justice Brett Kavanaugh and Chief Justice John Roberts noted that any further transparency was enforceable by the Securities and Exchange Commission (SEC) and not the US Supreme Court. Thus, any decision not in favour of Facebook would mean a lot more litigation at the lower courts and many potential opportunities for an out-of-court settlement with the plaintiffs.

Following the Facebook data breach, the SEC has enhanced its scrutiny of social media companies' disclosure standards. The agency has issued guidelines for businesses on disclosure of cybersecurity concerns and data breaches. Their involvement in this matter is crucial; it has the authority to adopt rules and regulations requiring firms to disclose material information to investors. The court's judgement could impact the SEC's capacity to oversee corporate disclosures and safeguard investors.

A verdict in favour of Facebook, on the other hand, may encourage businesses to be less open about their activities. This could lead to a drop in investor confidence, making it more difficult for investors to make sound decisions. Additionally, it may hinder authorities' capacity to hold firms accountable for malfeasance, which means Facebook’s involvement in the Cambridge Analytica Scandal went largely unpunished.

Finally, the United States Supreme Court's ruling will determine the future of corporate disclosure and investor protection. The case has important consequences for both the technology industry and the overall economy. But – considering the split – we probably won’t know for sure anytime soon.