Inc.’s failure to safeguard privacy was
blamed in an investor lawsuit for a slump in its share price that
followed the revelation user data was harvested without permission
by a research firm connected to U.S. President Donald Trump.
world’s largest social media network was sued in San Francisco
federal court on Tuesday by shareholders in a class action who said
they suffered losses after the disclosure that Cambridge Analytica,
a U.K.-based firm that aided Trump, improperly obtained profile
information on 50 million users.
Facebook fell as
much as 5.2 percent to $175.41 Monday in New York, wiping out all of
the year’s gains so far. It was the biggest intraday drop since Jan.
12. The stock dropped another 2.6 percent Tuesday to close at
$168.15, after Bloomberg reported that
the company is under investigation by the Federal Trade Commission,
citing a person familiar with the matter.
suit would represent people who bought shares of Facebook from Feb.
3, 2017, when Facebook filed its annual report and cited security
breaches and improper access to user data, through March 19, two
days after a New York Times report revealed
how data from Cambridge Analytica obtained through Facebook was used
without “proper disclosures or permission.” The stock has tumbledmore
than 9 percent this week.
are committed to vigorously enforcing our policies to protect
people’s information,” said Paul Grewal, deputy general counsel at
Facebook. “We will take whatever steps are required to see that this
happens,” he said in a statement.
that period, “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,” according to the
Robbins, a securities class action lawyer who isn’t involved in the
case, called the Cambridge Analytics case “troubling” for Facebook
and the country overall.
have potential culpability in a number of areas,” Robbins said about
the social network by phone before the lawsuit was filed. “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.”
may be able to sue Facebook successfully if they can show the
company induced them to invest based in part on false, misleading or
incomplete information regarding practices that might have averted
the user privacy issues, Robbins said.
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.”
Long History of Resolving Privacy Claims on the Cheap
of the improper data collection is the latest in a string of
discomforting revelations about the ways in which the network may
have been used to affect the outcome of the 2016 U.S. presidential
election. Facebook is under fire over the proliferation of “fake
news” on its site and Russian actors leveraging the platform for
shares dropped Monday amid an outcry over the data collection, which
occurred with a U.K. professor claiming to be gathering information
for "academic" purposes. Instead, it was used to develop techniques
deployed by the Trump campaign, in a venture backed by wealthy
Republican donor Robert Mercer.
said on Friday that the professor, Aleksandr Kogan, asked people to
take a personality quiz that he claimed was for academic purposes. A
total of 270,000 signed up for the quiz, and in doing so permitted
Kogan to access data for both those individuals and their friends,
exposing profiles of 50 million people, according to the New York
claim that this is a data breach is completely false,” Grewal, the
deputy general counsel, wrote in a March 17 post. “People
knowingly provided their information, no systems were infiltrated
and passwords or sensitive pieces of information were stolen or
the quiz didn’t violate Facebook’s rules at the time, Kogan breached
them by passing that data along to Cambridge Analytica, Facebook
said. The company discovered the misuse in 2015 and shut off the
professor’s access and asked the research company to certify that it
had deleted the data at issue.
social network said Friday it learned the information wasn’t erased,
and Cambridge Analytica denied on Saturday that it still had access
to the data. The research firm used the data to create tools and
techniques that were put to use in the 2016 election campaign,
according to the New York Times.
social network is also battling privacy claims
from consumers in San Francisco federal court over the use of
biometric data, and last month it agreedto
pay $35 million to settle claims that its officers and directors
overstated prospects for earnings and growth in the mobile market
ahead of its 2012 initial public offering. The company didn’t admit
to any wrongdoing.
on both sides of the Atlantic have called on Facebook Chief
Executive Officer Mark Zuckerberg to explain. Massachusetts Attorney
General Maura Healey opened a civil probe and Connecticut Attorney
General George Jepsen has issued a written inquiry to Facebook to
answer questions about the matter.
Union Justice Commissioner Vera Jourova plans to meet with Facebook
officials in Washington on March 21. She called the data misuse
“horrifying, if confirmed” and “not acceptable.”
The case is
Yuan v. Facebook Inc., 3:18-cv-01725, U.S. District Court, Northern
District of California (San Francisco).
With assistance by Erik Larson, and Sarah Frier