Ohio Attorney General Dave Yost announced on Monday that he has filed a lawsuit against Facebook, claiming the company misled and deceived investors in an effort to boost the price of its stock.
Yost, a Republican, filed the lawsuit on behalf of the Ohio Public Employees Retirement System (OPERS), which has invested millions in Facebook stock. Also named as defendants are Facebook executives Mark Zuckerberg, David M. Wehner, and Nick Clegg.
The multi-pronged lawsuit alleges that “from April 29 through Oct. 21, 2021 Facebook and its senior executives violated federal securities laws by purposely misleading the public about the negative effects its products have on the health and well-being of children and the steps the company has taken to protect the public,” and by inflating its user numbers, thus defrauding investors.
“This matter arises from an egregious breach of public trust by Facebook, which knowingly exploited its most vulnerable users—including children throughout the world—in order to drive corporate profits,” the lawsuit contends. “At the same time, Defendants repeatedly misrepresented to investors and the public that use of Facebook’s products does not harm children, that the Company takes aggressive and effective measures to stop the spread of harmful content, and that Facebook applies its standards of behavior equally to all users.”
“Facebook investors recently learned the truth when former Facebook employee turned whistleblower, Frances Haugen, leaked internal documents to the Wall Street Journal” showing that “Defendants were aware that Facebook’s platforms facilitate dissention [sic], illegal activity, and violent extremism, and cause significant harm to users, especially children, but Facebook refused to correct these issues,” the lawsuit alleges. In October, Haugen filed eight SEC complaints against Facebook alleging that the company repeatedly misled the public and investors.
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Yost’s lawsuit claims that Facebook repeatedly assured investors that it has “the most robust set of content policies out there” and “touted the aggressive steps it takes to ensure the safety and security of its users by preventing misinformation and harmful content from spreading through its platforms.” Facebook also stated that it was “committed to keeping people safe and assured investors that it enforces its content policies evenly across all users. These and similar statements made throughout the Class Period were false.”
“Those documents show that Defendants were acutely aware that the products and systems central to Facebook’s business are riddled with flaws that sow dissention [sic], facilitate illegal activity and violent extremism, and cause significant harm to users, but Facebook lacks the will or ability to correct them,” according to the filing. “Despite this knowledge, Facebook opted to maximize its profits at the expense of the safety of its users and the broader public, exposing Facebook to serious reputational, legal, and financial harm.”
Moreover, the lawsuit contends that Facebook was inflating user metrics “and that the number of duplicate accounts created by users comprised a greater proportion of Facebook’s active users than the Company represented.” As a result of the “misrepresentations,” “shares of Facebook common stock traded at artificially inflated prices.” A Wall Street Journal review of internal Facebook documents showed that the company knew that duplicate accounts were “very prevalent,” which made Facebook’s publicly declared numbers “less trustable.”
Facebook “made materially false and misleading statements and omissions, and engaged in a scheme to deceive the market. This artificially inflated the price of Facebook common stock and operated as a fraud or deceit on the Class,” the lawsuit states. “Later, when Defendants’ prior misrepresentations and fraudulent conduct were disclosed to the market, the price of Facebook stock fell precipitously as the prior artificial inflation came out of the price over time. As a result of their purchases of Facebook common stock during the Class Period, Plaintiff and other members of the Class suffered economic loss, i.e., damages, under the federal securities laws.”
As a result of the whistleblower’s allegations and the “reputational harm” that followed, “Facebook’s stock price declined by $54.08 per share, or over 14%, representing a decline of more than $150 billion in Facebook’s total market capitalization,” the lawsuit claims.
The lawsuit seeks to recover the lost stock value and demands that “Facebook make significant reforms to ensure it does not mislead the public about its internal practices,” according to a press release by Yost’s office. The plaintiffs are asking the judge to allow the case to proceed as a class-action suit “on behalf of all persons or entities that purchased or otherwise acquired the publicly traded Class A common stock of Facebook,” with the exception of the “defendants and their families, directors, and officers of Facebook and their families and affiliates.” Such a suit could involve hundreds of thousands of investors who purchased more than two billion shares of Facebook stock.
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