What looked like a fresh mess for Facebook is no more as the social media company has won the dismissal of the investor lawsuit. 

The company was sued for deceiving investors about the likely impact of a privacy breach on its stock price. Although Facebook has won the case, the investors still have a chance to re-file their case. 

The class-action lawsuit was consolidated from several investors’ complaints which had been filed since last year. It was targeted at Facebook’s Chief Organisation Officer, Sheryl Sandberg, and Chief Financial Officer, David Wehner.

More details: Facebook’s investors complained about a privacy breach by Facebook. The privacy breach was first reported by the media in 2015. Facebook reportedly allowed Cambridge Analytica, a British political consulting firm, to access data for an estimated 87 million Facebook users. 

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The privacy breach didn’t stop there, as Facebook continued to allow third-party access its data which was reported again by multiple media outlets on March 2018. The reports caused the company’s stock price to drop more than 18% in 2 weeks.  

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Facebook’stock price also dropped sharply again, by nearly 19% in July 2018. This was immediately after the company revealed in its quarterly earnings report that growth in the number of active users was slowing and total revenue was declining. 

The investors claimed in their lawsuit that Facebook and its executives made dozens of statements, downplaying the effect that the Cambridge Analytica leak and related user privacy issues would have on its stock price. 

Recall that Nairametrics had previously reported that Facebook faced a 16-month-long probe in which the United States Government imposed a $5 billion fine on the company over privacy breach and its involvement with Cambridge Analytica. 

Deal book 300 x 250
Deal book 300 x 250

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The ruling: The US District Judge, Edward Davila, who presided over the case said that the investors had failed to identify specific instances of the company or its executives knowingly, making false statements about the privacy breach.  

He noted that some were forward-looking predictions and others were general expressions of optimism that the issues would not affect the stock price, which generally cannot be the basis for securities fraud lawsuits. 

 

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