In a critical moment for corporate accountability, the U.S. Supreme Court is preparing to hear appeals from tech giants Meta’s Facebook and Nvidia as they seek to dismiss separate securities fraud lawsuits. These cases arise in the wake of recent Supreme Court decisions that have already weakened federal regulators, including the Securities and Exchange Commission (SEC), potentially altering the landscape for private litigants aiming to hold corporations accountable for alleged misconduct.
Facebook’s Ongoing Legal Battle
The Supreme Court, which currently holds a 6-3 conservative majority, will first address Facebook’s appeal this Wednesday. The social media giant faces accusations from a group of investors led by Amalgamated Bank, who claim the company misled them by failing to disclose a significant data breach involving Cambridge Analytica that impacted over 30 million users. The lawsuit, initiated in 2018, alleges that Facebook’s misleading statements led to a sharp decline in stock value after media reports linked the breach to the 2016 presidential campaign of Donald Trump.
Facebook contends that it is not liable under the Securities Exchange Act of 1934 because the risk disclosures made to investors were appropriately forward-looking. The company argues that reasonable investors would understand these disclosures as probabilistic in nature, rather than requiring the company to disclose past events as risks. This argument has raised questions about the standards of transparency that publicly traded companies must uphold, especially regarding prior data breaches.
Nvidia’s Crypto Controversy
On November 13, the Supreme Court will shift its focus to Nvidia’s case. The Santa Clara-based chipmaker is appealing a lawsuit claiming it misrepresented the proportion of its revenue derived from the cryptocurrency sector. The plaintiffs, led by the investment management firm E. Ohman JFonder AB, allege that Nvidia’s 2017 and 2018 statements downplayed the impact of cryptomining on its sales, thereby misleading investors who needed accurate data to assess the company’s performance.
Nvidia asserts that the plaintiffs have failed to meet the legal standards established by the Private Securities Litigation Reform Act of 1995, which governs the criteria for filing private securities fraud lawsuits. In 2022, the company settled similar allegations with U.S. authorities by agreeing to pay $5.5 million for not fully disclosing the effect of cryptomining on its gaming business.
The implications of these cases could extend far beyond Facebook and Nvidia. Legal experts suggest that the Supreme Court’s inclination towards business-friendly rulings may further diminish the private right of action, which allows individuals or groups to sue for damages caused by corporate misconduct. Andrew Feller, a former SEC lawyer, indicated that the Court’s recent trend of limiting federal regulatory authority could provide a favorable environment for these tech giants.
Michael Perino, a law professor at St. John’s University, emphasizes the importance of private rights of action as a necessary complement to public enforcement. He noted that the SEC is often under-resourced in its ability to address the vast scope of securities regulations. By allowing private litigants to pursue class action lawsuits, aggrieved investors can hold corporations accountable when regulatory bodies may lack the resources or capacity to do so.
As the Supreme Court prepares to hear these pivotal cases, the future of securities fraud litigation hangs in the balance. If the Court sides with Facebook and Nvidia, it could signal a significant shift in the ability of private investors to challenge corporate misconduct, potentially diminishing the power of private lawsuits in safeguarding investor rights and maintaining corporate transparency.
