A lawsuit brought against Facebook by company investors claims that the company failed to protect user data which caused company shares to drop.
Bloomberg reports that Facebook shareholders sued the company in a San Francisco court this week in a class action lawsuit which alleges that the shareholders suffered significant losses following the revelation that the user data of millions of Facebook accounts was allegedly compromised via a personality quiz app. Facebook stock dropped by 6.7 percent on Monday, wiping out all of the company’s gains for the year so far. Bloomberg reports that Facebook lost more than Tesla’s entire market cap over the last two days.
The suit brought against Facebook represents shareholders that purchased stock in the company from February 3, 2017, which is when the social media company released their annual report outlining security breaches and improper access to user data across the platform, through March 19, 2018, which is two days after the New York Times revealed the data scandal surrounding Cambridge Analytica which alleged that the data analysis firm gained Facebook user data without “proper disclosures or permission.”
Paul Grewal, Facebook’s deputy general counsel, stated “We are committed to vigorously enforcing our policies to protect people’s information. We will take whatever steps are required to see that this happens.” The complaint filed against Facebook alleges that “defendants made false or misleading statements and failed to disclose that Facebook violated its own data privacy policies by allowing third parties access to personal data of millions of Facebook users without their consent.”
Darren Robbins, a securities class action lawyer who is not involved in the current case brought against Facebook, said that the Cambridge Analytica situation poses a number of issues for the company. “They have potential culpability in a number of areas,” said Robbins. “Whether liability from users, government regulators or investors follows, there are implications for our society given the unique position Facebook occupies in the daily lives of Americans.”
Shareholders may be successful in their case against Facebook if they can prove that the company induced them to invest based on false, misleading or incomplete information relating to the use of user data. “That is dependent upon the representations made about the types of actions Facebook has taken to protect this information,” he said. “If the representations made publicly are inconsistent with what actually occurred, is there potential liability? The answer is yes.”
Facebook has denied that the Cambridge Analytica scandal constitutes a data breach, Grewal stated, “The claim that this is a data breach is completely false. People knowingly provided their information, no systems were infiltrated and passwords or sensitive pieces of information were stolen or hacked.” European Union Justice Commissioner Vera Jourova has plans to meet with the social media company in Washington this month and stated that the data scandal is “horrifying, if confirmed” and “not acceptable.”