A Facebook
shareholder has sued Mark Zuckerberg and other executives over allegations stemming from data harvesting by the defunct political consultancy Cambridge Analytica.
The alleged privacy glitch
resulted in “extreme financial and reputational damage to Facebook,” Robert Feuer alleges in a 193-page complaint filed Wednesday in Chancery Court in Delaware.
“The
reputational damage suffered by Facebook is especially harmful to Facebook because the company is built on customer trust,” the complaint reads. “This reputational harm undoubtedly
translates into long-term damage to the company.”
Feuer also alleges that Zuckerberg and other executives engaged in insider trading.
A Facebook spokesperson says all trades were
done through a plan created under a Securities and Exchange Commission rule that allows executives to arrange in advance to sell shares.
The spokesperson says the lawsuit is “without
merit.”
Feuer alleges in his complaint that Facebook's management knew in 2015 that Cambridge Analytica obtained data about users, but did “virtually nothing in
response.”
“To the contrary, the company’s executive management and board ... consistently misrepresented to users, shareholders, regulators and Congress that Facebook had a
comprehensive privacy program in place, that Facebook notified users if their information had been compromised, and that Facebook required third-party developers to adhere to strict confidentiality
provisions.”
Feuer adds that Facebook could face billions in fines if it is found to have violated a consent decree with the Federal Trade Commission.
In March of 2018, it became
widely known that political consultancy Cambridge Analytica obtained data about millions of Facebook users. Cambridge Analytica reportedly received the data from researcher Aleksandr Kogan, who
obtained the information in 2014 through the personality-quiz app "thisisyourdigitallife." Only 270,000 Facebook users downloaded Kogan's app, but he was able to gather data about many of those users'
contacts.
In 2015, Facebook stopped allowing developers to access data about users' friends. But in 2014, when Kogan's app scraped the data, Facebook allowed developers to glean information
about users' friends, subject to their privacy settings. Facebook's terms of service prohibited developers from sharing that information.
Shortly after news broke about Cambridge Analytica,
Facebook lost $50 billion in market cap. The stock price recovered, but dropped again last July. As of Wednesday, Facebook was trading at around $195 a share -- down from a high of $214 last July.
The FTC is currently investigating whether Facebook's data transfers to Cambridge Analytica violated a 2012 consent decree that prohibits Facebook from misrepresenting its privacy practices, and
from misrepresenting the extent to which it makes users' information available to third parties.
Facebook said last week it has set aside between $3 billion and $5 billion for a potential
settlement with the FTC.
A separate shareholder lawsuit against Facebook stemming from the Cambridge Analytica data transfers is pending in federal court in the Northern District of
California.