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_Facebook, Inc. v. Amalgamated Bank_, No. 23-980, 2024 WL 2883752 (June 10, 2024). Decision below: _In Re Facebook, Inc. Sec. Litig., _87 F.4th 934 (9th Cir. 2023). Oral argument is

scheduled for November 6, 2024. ISSUE: _Whether, under the PSLRA’s heightened pleading standard, shareholders adequately pleaded falsity as to the challenged risk statements in which

Facebook stated that improper third-party harvesting of its users’ data was purely a hypothetical risk even though it had already materialized._ In 2018, news broke that Cambridge Analytica

had improperly harvested personal data from millions of unwitting Facebook users and retained the data beyond Facebook’s control. Despite knowing for two years of the misconduct, Facebook

failed to inform its affected users and allowed certain third parties to access users’ Facebook friends’ data without their consent. _In re Facebook, Inc. Sec. Litig._, 87 F.4th 934, 941

(9th Cir. 2023), _cert. granted in part sub nom._ _Facebook, Inc. v. Amalgamated Bank_, No. 23-980, 2024 WL 2883752 (June 10, 2024). In its 2016 risk disclosures to shareholders, Facebook

stated that improper third-party harvesting of its users’ data was merely a hypothetical risk even though it had already materialized. _Id._ at 944. Facebook’s executives further made

various statements assuring users that they fully controlled their data on Facebook and that no third party would be able to access the data without their consent. _Id._ at 942. In the wake

of the Cambridge Analytica scandal, Facebook’s stock plummeted losing more than $200 billion in market capitalization. _Id._ at 941. The shareholders’ securities class action against

Facebook under the PSLRA ensued. The shareholders alleged that although Facebook knew Cambridge Analytica had improperly accessed and used Facebook users’ data, Facebook represented in its

2016 10-K filing with the U.S. Securities and Exchange Commission (SEC) that only a hypothetical risk of improper third-party misuse of Facebook users’ data could harm Facebook’s business

and reputation. The trial court held that the shareholders failed to plead falsity, a required element of their lawsuit, as to the challenged risk statements because Cambridge Analytica’s

misconduct was public knowledge at the time they were made. _In re Facebook, Inc. Sec. Litig._, No. 5:18-CV-01725-EJD, 2021 WL 6000058, at *6 (N.D. Cal. Dec. 20, 2021).The court further

found that while the SEC filing warned of risks of harm to Facebook’s business, the shareholders failed to allege that Cambridge Analytica’s misconduct was causing such harm when the

statements were made. _Id._ at *7. The U.S. Court of Appeals for the Ninth Circuit reversed, holding that “the shareholders adequately pleaded falsity as to the statements in Facebook’s 2016

10-K that represented the risk of third parties improperly accessing and using Facebook users’ data as purely hypothetical.” _In re Facebook, Inc. Sec. Litig._, 87 F.4th at 949. Since

Facebook was aware of Cambridge Analytica’s misconduct before 2017, its statements about risk management directly contradicted what Facebook knew when it filed its 2016 10-K with the SEC.

_Id. _The Ninth Circuit further held that “[t]he mere fact that Facebook did not know whether its reputation was already harmed when filing the 10-K, does not avoid the reality that it

created an impression of a state of affairs that differed in a material way from the one that actually existed.” _Id._ at 950 (internal citations omitted). The Supreme Court is set to decide

whether a company’s risk disclosures are false or misleading under the PSLRA when they do not disclose that a risk has already materialized.  WHAT’S AT STAKE Investors and pension funds

rely on the accuracy of risk disclosures filed by corporations with the SEC in making investment decisions. When publicly traded corporations fail to disclose material information in their

risk disclosures, investors stand to lose billions of dollars of the value of their shares. The failure to disclose material information in SEC filings adversely impacts older adults by

reducing the value of the holdings in their retirement accounts. Private securities litigation class actions benefit investors and retirement savers by bringing to light instances of

securities fraud committed by corporations and their executives. Should the Supreme Court further enhance the pleading requirements for alleging falsity and “scienter” (a defendant’s

knowledge that an action is wrongful and intent to act anyway) under the PSLRA, investors and pension funds would have to surmount additional hurdles in bringing securities fraud class

actions. UPDATE: On November 22, the Supreme Court issued an unsigned order dismissing the case as improvidently granted. This action leaves in place the lower court ruling. Stefan Shaibani,

[email protected] VIEW THE FULL SUPREME COURT PREVIEW