A class action suit brought by Meta shareholders that sought $8 billion from its current and former leaders has been settled, ending a brief trial in Delaware’s chancery court. The suit was filed as recompense for the $5 billion in fines and added legal costs the company was hit with over the Cambridge Analytica scandal.
The suit was somewhat unusual in that it called for Mark Zuckerberg, along with former Facebook leaders and board members such as Peter Thiel and Marc Andreessen, to personally reimburse Meta for the costs that the Cambridge Analytica scandal incurred. Facebook was hit with massive fines in 2012 in part because it was found to have violated a prior FTC order requiring it to take greater care with user data, something that the suit alleges is the personal responsibility of the leadership of the time.
The terms of the settlement have not yet been released to the public, nor is there any indication of any admissions of wrongdoing.
Meta shareholders call Facebook privacy disclosures of the time “misleading”
The complete list of billionaire defendants included Zuckerberg as well as former Facebook and Meta CEO Sheryl Sandberg, early Facebook investor and current Palantir chairman Peter Thiel, venture capitalist Marc Andreessen and Netflix co-founder Reed Hastings. Some are merely multimillionaires, such as former Biden chief of staff Jeff Zients. All had been slated to take the stand and provide testimony, but only several did before the trial was halted by the settlement. The Meta shareholders had been requesting that the defendants reimburse the company for the $5 billion in FTC fines it paid over the Cambridge Analytica scandal and an added $3 billion in legal fees.
Court filings by the defense described the case as “extreme” and indicated a key element of their argument was that Facebook had hired a third-party consulting service to ensure compliance with the prior FTC order but was actively misled by Cambridge Analytica as to the scope and nature of its data harvesting. The 2012 consent order that is central to the case was the culmination of a collection of complaints from 2009 to 2011 that were primarily filed by privacy group EPIC, alleging that Facebook disclosed user information to third parties without user consent and in some cases overrode privacy settings to do so. The consent order was part of a settlement agreement that barred Facebook from misrepresenting its privacy and security practices and set new user data consent and handling requirements and remains in effect until 2032.
The Meta shareholders brought an unusual type of suit called a “Caremark claim,” named for a pioneering 1996 case that established personal levels of responsibility of corporate boards to ensure that company functions are in compliance with the law. In that suit the shareholders of Caremark International, the owner of drugstore chain CVS, alleged that the directors breached their duty of care by failing to implement adequate internal control systems that would have restricted company employees from making illegal payments to doctors in return for referring their Medicare and Medicaid patients to Caremark’s services. Caremark claims are notoriously difficult for the prosecution due to a very high burden of proof of conscious wrongdoing by directors, but increasing numbers have been sustained by judges in recent years including a 2021 suit brought against Boeing.
Zuckerberg faced some special charges in the case as the Meta shareholders alleged that he anticipated that the Cambridge Analytica scandal would drop Facebook’s stock price and preemptively sold some of his shares to realize what ended up being a total profit of at least $1 billion. The defendant’s court filings have addressed this issue, claiming that Zuckerberg has long used a stock trading plan that removes his direct control over sales and is designed expressly to prevent insider trading scenarios from arising. As with other aspects of the settlement, there is not yet any word about this particular aspect.
Cambridge Analytica continues to generate headlines over a decade later
The ruling likely would have hinged on whether or not Meta shareholders could have convincingly demonstrated that the Facebook board members knowingly violated the 2012 FTC order. Facebook has previously indicated that it opened an investigation into Cambridge Analytica in December 2015, but ultimately did not suspend it or its data analysis partner Strategic Communication Laboratories until March 2018. This came shortly after the first negative media stories about Cambridge Analytica broke. It has also indicated that it had concerns about the company’s data gathering practices months before it began the formal 2015 investigation. Facebook has faced heavy criticism of its general handling of the incident, but at least from information currently available to the public it is difficult to draw a clean line to knowing board malfeasance.
Given the complexity of the case and the numerous parties being sued for personal liability, it could be months before the terms of the Cambridge Analytica settlement are finalized (and potentially years before Meta shareholders receive any compensation that might have been negotiated).
