Facebook Defeats Investor Lawsuit Over Cambridge Analytica

Siding with Facebook, a federal judge has thrown out a lawsuit by investors over revelations that the platform allowed outside companies -- including data consultancy Cambridge Analytica -- to obtain personal information from millions of users.

In an opinion issued Monday, U.S. District Court Judge Edward Davila in San Jose ruled that the allegations in the investors' complaint, even if true, wouldn't support a finding that Facebook engaged in securities fraud.

The lawsuit, brought on behalf of investors who purchased stock between February 3, 2017 and July 25, 2018, centered on allegations that Facebook misrepresented the extent to which it protected users' privacy.

Davila ruled Monday that even if Facebook made misleading statements, the investors didn't show that Facebook executives did so intentionally.

The judge previously dismissed earlier versions of the complaint, but without prejudice -- meaning he allowed the investors to reformulate their claims and try again. Monday's dismissal was with prejudice, meaning it's final, absent intervention by an appellate court.

The lawsuit stemmed from revelations about Facebook's data-sharing practices -- including news that the Cambridge Analytica obtained personal data from up to 87 million users. Those practices also resulted in a $5 billion fine by the Federal Trade Commission, and a class-action lawsuit on behalf of consumers.

In March of 2018, it emerged that the defunct consultancy obtained data about millions of Facebook users. Cambridge Analytica reportedly received the data from researcher Aleksandr Kogan, who got the information in 2014 through the personality-quiz app "thisisyourdigitallife."

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.

In 2018, immediately following the public reports about Cambridge Analytica, Facebook lost $50 billion in market cap. The stock price recovered, but dropped again by $119 billion at the end of July. (The company's stock has since rebounded to around $334 a share, giving the company a market cap of around $930 billion as of December 21 -- up from around $509 billion in late July of 2018.)

The investors who sued flagged dozens of allegedly misleading statements by the company and its executives, including broad statements like users “control what they share” and “no one is going to get your data that shouldn’t have it.”

In their most recent complaint, filed in October of 2020, the investors alleged that Facebook executives knew their statements about privacy were misleading because the company “embedded” employees with Cambridge Analytica.

Davila rejected that theory, writing that the investors didn't put forward facts that could prove the embedded employees notified Facebook executives about the alleged misappropriation of data.

“Plaintiffs’ general allegations that the 'embedded' employees 'would have' known about the violations, that they 'would have' reported the violations, or that Executive Defendants 'would have' known about Cambridge Analytica’s data use are too speculative and fail to demonstrate actual knowledge,” the judge wrote.

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