Supreme Court hears Facebook's bid to block Cambridge Analytica shareholder suit

The Supreme Court considered Wednesday a bid from Facebook to block a shareholder lawsuit over the Cambridge Analytica data scandal from moving forward.

Shareholders sued the social media company after the public became widely aware of the scandal in 2018, accusing Facebook of misleading investors in an earlier securities filing by failing to mention Cambridge Analytica’s misuse of user data.

While the tech giant acknowledged in a 2016 filing that improper third-party use of its data could harm its business, it did not mention Cambridge Analytica. As a result, the shareholders argue, they were led to believe that no such incident had occurred.

However, Facebook contends that its statements in the risk disclosure section of the securities filing were only about future events and did not suggest that such an event had never taken place.

Several of the Supreme Court’s conservative justices pushed back on the shareholders’ argument Wednesday, suggesting that it could create confusion for companies about what to disclose and perhaps might be better left to the Securities and Exchange Commission (SEC).

"Why does the judiciary have to walk the plank on this and answer that question when the SEC could do it?” Justice Brett Kavanaugh asked the attorney for the U.S. government, who was arguing on behalf of the shareholders.

“With all the uncertainty and all the hypotheticals that have arisen, which, in turn, at least as I see it, just speaking with myself, raises a lot of questions for companies about what they have to disclose and what they don't,” he added.

Kavanaugh also suggested that there are different ways that a reasonable investor could interpret a forward-looking statement and what it says about what might or might not have happened in the past.

Chief Justice John Roberts proposed a hypothetical situation in which such a statement could indicate that the event did previously occur.

“For example, if you're leaving my house and I say you might slip on the steps, you wouldn't say, ‘Well, that's never happened before,’” Roberts said. “Your inference would be that has happened, and that's why I'm giving you the warning.”

The court’s three liberal justices seemed somewhat more skeptical of Facebook’s argument Wednesday.

“What concerns me a little bit is I don't know if your position is appreciating the fact that past occurrences, past triggering offense, can still lead to future harm and that what is misleading is the suggestion, when you make your statement completely futuristic, that no such future harm is going to occur,” Justice Ketanji Brown Jackson said to Facebook’s lawyer.

Justice Elena Kagan also noted that Facebook’s risk disclosure statement in its securities filing offered up information about past events other than Cambridge Analytica.

“It doesn't talk about Cambridge Analytica, but it does talk about other things,” Kagan said. “It says there have been hacking incidents in the past. Hacking is a real problem, and we've experienced it.”

“And you know, if you had left that out, I think that you would have every right to stand up there and say, like, ‘Who could really think that our statement says that there aren't hacking incidents in the past?’”

The case stems from the 2016 presidential election, when Cambridge Analytica used data from tens of millions of unwitting Facebook users to support the presidential campaigns of Sen. Ted Cruz (R-Texas) and President-elect Trump, who was still a candidate at the time.

The British political consulting firm purchased the data from Aleksandr Kogan, who created a third-party app called This is Your Digital Life that compiled data from users for a personality test.

However, it also compiled data on users’ Facebook friends, allowing it to accumulate a vast trove of information that was ultimately used to create psychological profiles of U.S. voters for the campaigns.

The Guardian first reported on Cambridge Analytica's use of the data on behalf of the Cruz campaign in 2015. Three years later, The Guardian and The New York Times revealed that the consulting firm had also used the data to support the Trump campaign.

The outlets also reported that Facebook had been aware of Cambridge Analytica's misuse of data but did not notify users or publicly take action against the firm until 2018.

Facebook faced a massive backlash over the revelations. The Federal Trade Commission fined the social media giant $5 billion, and the SEC sued the company, although it ultimately settled for $100 million.