In a high-stakes battle, tech giants Meta (Facebook) and Nvidia are petitioning the U.S. Supreme Court to dismiss federal securities fraud lawsuits that threaten their corporate shield. As the Supreme Court prepares to hear these cases, the implications could reshape the landscape for private lawsuits against companies, potentially making it more difficult for investors to seek accountability for corporate misconduct.
The backdrop to this showdown is a series of recent rulings that have curtailed the power of federal regulators, including the Securities and Exchange Commission (SEC), known for overseeing securities fraud. Experts suggest that this pattern of rulings could lead to a sympathetic reception for both Facebook and Nvidia as they contest the validity of the lawsuits filed against them.
At the heart of Facebook’s case is a class action suit initiated by investors led by Amalgamated Bank, which accuses the company of failing to adequately disclose the risks stemming from a significant data breach involving Cambridge Analytica in 2015. This breach, which affected over 30 million users, came to light following a drop in Facebook’s stock after news reports highlighted how the firm’s data was used during Donald Trump’s 2016 presidential campaign. The investors allege that Facebook misled them by downplaying the risks of such incidents, seeking unspecified damages to recover their losses.
Facebook’s argument hinges on its stance that it wasn’t legally bound to disclose risks that had already materialized, asserting that investors should interpret its risk warnings as forward-looking statements. The SEC had previously penalized Facebook, leading to a $100 million settlement, alongside a hefty $5 billion fine from the Federal Trade Commission concerning the Cambridge Analytica scandal.
On the other hand, Nvidia is gearing up for a Supreme Court hearing on November 13 regarding allegations that it misled investors about the extent of its sales tied to the cryptocurrency market. The suit claims that Nvidia downplayed the significance of its revenue growth from crypto-related purchases during 2017 and 2018, thus misguiding investors seeking clarity on how cryptomining impacted its business.
Nvidia contends that the plaintiffs did not meet the stringent requirements set by the Private Securities Litigation Reform Act of 1995, which governs private securities fraud claims. Notably, in 2022, Nvidia settled with U.S. authorities over similar allegations, agreeing to pay $5.5 million for failing to disclose the influence of cryptomining on its gaming sector.
Legal experts suggest that the evolving judicial landscape could encourage more private securities litigation, especially as recent Supreme Court decisions have diminished the SEC’s enforcement capabilities. With a conservative majority on the bench, the outcome of these cases could significantly influence the future of investor rights and corporate accountability, making the stakes higher than ever for both the plaintiffs and the tech behemoths.
