• by Wendy Davis , Yesterday

Meta Platforms users who alleged they were victims of "pump-and-dump" investment scams advertised on Facebook and Instagram are petitioning a federal appellate court to revive their lawsuit against the company.

"Meta’s advertising tools do not merely display what an advertiser uploads; they generate the images, text, and calls to action and choose which version of an ad each user sees," counsel for the plaintiffs argued in papers filed Monday with the Ninth Circuit Court of Appeals.

"Here, Meta’s tools built advertisements that put the names and faces of well-known financial figures on fictitious 'investment clubs' and invented those clubs’ track records," counsel wrote, adding that web users "were deceived by those ads."

The plaintiffs' filing come in a battle that began last year, when five consumers led by Joshua Bouck sued Meta over fraudulent ads relating to investments.

"Among the multitude of scam ads on Meta platforms are investment scams, with scammers impersonating celebrities, well-known investors, and legitimate financial advisory firms to lure unsuspecting users into fraudulent schemes," they alleged in a class-action complaint brought in U.S. District Court for the Northern District of California.

They said they were defrauded by an investment scam "perpetrated by an organized criminal network operating out of China, Taiwan, and Malaysia."

Scammers allegedly used Meta's ad tools to target victims with ads for investment clubs.

When people clicked on the ads, they were added to WhatsApp groups where they were encouraged to purchase shares of the penny stock China Liberal Education Holdings Ltd.

That stock reported 29 million outstanding shares, but "secretly issued" 240 million additional shares to scammers, according to the complaint.

When victims of the scam purchased shares, the scammers were able to sell their holdings, after which the stock price fell and the plaintiffs (and other investors) lost as much as $300 million, the complaint alleged.

Bouck and the others alleged that Meta’s ad tools "determined the content and appearance of the ads used to perpetrate the scam," and "directed the ads to particular Facebook and Instagram users based on data indicating the users would be vulnerable to the ads, including by targeting users who demonstrated an interest in investing."

Meta's tools "also optimized the particular ads targeted to each user, including by showing users ads featuring celebrities or investors of their same race or ethnicity in order to increase the appeal of the ads," the complaint alleged.

Meta argued that the matter should be dismissed at an early stage for several reasons, including that it is protected by Section 230 of the Communications Decency Act. That law provides that web companies aren't liable for material uploaded by users.

Orrick rejected that argument, ruling that if the allegations were proven true, Meta's own artificial intelligence tools would have helped create the ads.

"Because the complaint avers that the scam ... ads were created using these tools, it is at least plausible that some of the illegal content (i.e., the fraudulent statements in the ads) was created by Meta, not by the scammers," Orrick wrote.

Meta then argued that the case should be dismissed on the grounds that a federal statute regarding securities' lawsuits -- the Securities Litigation Uniform Standards Act -- overrode the plaintiffs' claims.

Orrick accepted this argument, essentially ruling that the plaintiffs would only be able to proceed if they filed a new complaint alleging that Meta violated federal securities laws. Other Facebook and Instagram users subsequently brought two similar lawsuits against Meta; Orrick dismissed those matters for the same reason. All three cases were consolidated on appeal.

The plaintiffs in the three matters are now asking the Ninth Circuit to reverse Orrick's decision.

Meta "is not a broker, an investment advisor, or an issuer of securities," counsel argues.

"Plaintiffs’ claims are not securities-fraud claims in disguise," counsel added, writing that Meta isn't the type of "securities industry" participant that is covered by the Securities Litigation Uniform Standards Act.

Counsel also wrote that any rule regarding Meta's liability won't "interfere with or undermine Congress’s efforts to establish uniform federal standards for securities industry participants."

Meta has also appealed the portion of Orrick's ruling that was unfavorable to it.

The company is expected to file arguments with the appellate court next month.