On December 20, 2021, the United States District Court for the Northern District of California dismissed a putative class action lawsuit against a social media company and some of its officers under the Securities Exchange Act. With respect to Facebook, Inc. Sec. Litigation.n ° 5: 18-CV-01725-EJD, 2021 WL 6000058 (ND Cal. December 20, 2021). The complainants alleged that the company made false statements regarding a data breach and regarding users’ control over their data. The court previously dismissed two previous complaints from the plaintiffs, but granted leave to reply. Addressing the complainants’ third amended complaint, the court ruled that the complainants had still not adequately argued for the data breach allegations and loss causation for the user data control claims. , and therefore dismissed the action without leave to reply.
Regarding the data breach allegations, the complainants alleged that the company made false or misleading statements regarding the risks to the company after the data breach and the results of an investigation by the company. Identifier. to 3. The Court emphasized that the complaint itself alleged that the entity responsible for the data breach had certified that it had deleted the diverted data; the plaintiffs therefore had to establish why the defendants should have known that the certifications were false. Identifier. The court ruled that the plaintiffs’ additional allegations – that the company had “incorporated” three employees into a political campaign associated with the use of the breach data – were still insufficient to establish scienter, as they did not alleged facts showing that “the” employees knew that the certification was false or that they had raised such a concern with company officials. Identifier. at 4 o’clock. Further, the court dismissed the plaintiffs’ attempt to establish scienter based on allegations that a company investigation revealed additional information about the continued misuse of user data associated with the data breach. , because the complainants did not sufficiently link the management of the company to the investigation or to any specific factual element. information revealed by the investigation. Identifier. at 5.
With respect to the contested statements about user control over their data — which the complainants claim were false because the company allegedly continued to provide access to user data to certain third parties — the court explained that the plaintiffs failed to establish a causal link with the loss because the alleged decline in the company’s stock price occurred more than a month after the company’s alleged data access practices had been publicly disclosed. Identifier. at 7 O’clock. Based on this time difference, the court ruled that the plaintiffs had failed to establish the necessary connection between the alleged corrective disclosure and the decline in the company’s stock price. Identifier.
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With respect to Facebook, Inc. Sec. Litigation.
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