WASHINGTON, Nov 4 (Reuters)– The U.S. Supreme Court will soon review appeals by tech giants Meta’s Facebook and Nvidia to block federal securities fraud lawsuits, in cases that could limit the ability of private litigants to hold corporations accountable.
Following a series of Supreme Court rulings in June that reduced the powers of federal regulators, including the Securities and Exchange Commission (SEC), the court now appears poised to consider curtailing the role of private plaintiffs in enforcing federal laws designed to punish corporate misconduct.
Andrew Feller, a former SEC lawyer now in private practice, noted the Supreme Court’s recent trend of pro-business rulings that have restricted the reach of federal regulators, suggesting that Facebook and Nvidia could find “a receptive audience” among the justices. The court currently has a 6-3 conservative majority.
“I think business interests will continue their recent pattern of aggressively challenging rules intended to hold them accountable, including by challenging the remaining private rights of action,” Feller said, referring to the ability of individuals or groups to sue for alleged harm.
Facebook and Nvidia sought Supreme Court intervention after the 9th U.S. Circuit Court of Appeals allowed separate class-action securities fraud lawsuits against them to proceed. On Wednesday, the court will hear arguments in Facebook's appeal to dismiss a lawsuit alleging that the company misled investors, violating the Securities Exchange Act, a 1934 federal law mandating public companies to disclose business risks.
The plaintiffs, a group of Facebook investors led by Amalgamated Bank, filed a 2018 class action accusing Facebook of concealing a 2015 data breach involving Cambridge Analytica, which impacted over 30 million users. The lawsuit was prompted by Facebook’s stock drop after reports emerged that Cambridge Analytica had used improperly obtained Facebook data in connection with Donald Trump’s 2016 presidential campaign. The plaintiffs seek monetary damages to recoup losses in Facebook stock value.
The core issue is whether Facebook violated the law by failing to disclose the past data breach in its business-risk statements, instead framing such risks as hypothetical. Facebook argues that it wasn’t required to reveal past events in its risk disclosures, which it described as forward-looking.
In 2019, the SEC took enforcement action against Facebook for this matter, which resulted in a $100 million settlement. Separately, Facebook paid a $5 billion fine to the Federal Trade Commission over the Cambridge Analytica incident.
Michael Perino, a law professor at St. John’s University, emphasized that private rights of action are essential to public enforcement efforts, noting that “securities class-action lawsuits effectively deputize private attorneys to bring actions on behalf of aggrieved investors.”
NVIDIA CRYPTO-RELATED PURCHASES
On Nov. 13, the U.S. Supreme Court will hear Nvidia’s appeal to dismiss a securities class action that accuses the California-based tech company of misleading investors about how much of its revenue relied on the volatile cryptocurrency market. The 2018 lawsuit, led by Stockholm-based investment firm E. Ohman J:or Fonder AB, claims Nvidia violated the Securities Exchange Act by making statements in 2017 and 2018 that downplayed the impact of cryptomining on its revenue growth, misleading investors and analysts interested in understanding the influence of the crypto market on Nvidia’s business.
In its Supreme Court filing, Nvidia argued that the plaintiffs did not meet the legal requirements set by the 1995 Private Securities Litigation Reform Act, which established standards for bringing private securities fraud cases. In 2022, Nvidia agreed to a $5.5 million settlement with U.S. authorities over charges that it failed to adequately disclose the effect of cryptomining on its gaming division.
David Shargel, a private attorney with experience representing clients before the SEC, noted that private securities litigation could gain importance following recent Supreme Court rulings limiting federal regulators' powers. He highlighted a June 27 decision where the court ruled that the SEC’s in-house enforcement violated the Seventh Amendment's right to a jury trial, potentially straining SEC resources.
"This could increase the burden on the SEC and similar agencies in bringing fraud-related claims, likely leading to more private litigation," Shargel explained. "While it’s uncertain how private actions will evolve, it’s not difficult to see them playing a larger role."
0 Comments