Facebook’s own words are the ‘ultimate definition of fraud,’ says Ohio attorney general

Alexis Keenan
·Reporter
Tue, November 16, 2021

A lawsuit alleging securities law violations, filed against Facebook's parent company Meta (FB) by Ohio’s largest pension fund, should be an easy one to prove, according to the state’s attorney general.

On Monday, Attorney General Dave Yost along with Ohio’s Public Employee Retirement System filed suit in federal district court in California, alleging that earlier in the year Facebook and its senior executives made false and misleading statements that artificially inflated its share prices.

“I don't think causation's going to be a terribly difficult thing to prove here,” Yost told Yahoo Finance Live, referencing a 2019 internal Facebook review the Wall Street Journal reported on earlier this year.

That internal review took issue with a Facebook policy that gave special treatment to the accounts of popular users like politicians and celebrities, allowing them to violate the platform's rules without repercussions. The review, marked attorney-client privileged, called the actions "a breach of trust."

“We are not actually doing what we say we do publicly,” said the confidential review, according to The Wall Street Journal. “Unlike the rest of our community, these people can violate our standards without any consequences.”

The Ohio attorney general suggested those words could be used against Facebook. “Facebook in its own internal review said we're not doing the things that we're saying we're doing publicly," he said. "And that's the ultimate definition I think of fraud: saying one thing and doing the other."

Facebook CEO Mark Zuckerberg testifies during a remote video hearing held by subcommittees of the U.S. House of Representatives Energy and Commerce Committee on "Social Media's Role in Promoting Extremism and Misinformation" in Washington, U.S., March 25, 2021. U.S. House of Representatives Energy and Commerce Committee/Handout via ReutersMore

According to the complaint, Facebook's stock dropped as a result of disclosures by former Facebook employee turned whistleblower, Frances Haugen, and a series of reports published by The Wall Street Journal. The disclosures and reports, together, the complaint says, paint a picture that Facebook was aware of but failed to disclose the extent of problems on its platforms concerning illegal activity, violent extremism, and harm to children.

“All told, these disclosures erased more than $100 billion in shareholder value and subjected Facebook to immense reputational harm,” according to the complaint, which seeks class action status.

The pension fund alone lost $4.3 million due to the disclosures, the lawsuit said. Those figures are based on the lawsuit's claim that losses should be measured from April 28 — when CEO Mark Zuckerberg allegedly made false or misleading statements during an earnings call — to Oct. 21 when the Wall Street Journal reported that 11% of Facebook's monthly active users worldwide come from duplicate accounts.

According to the allegations, when an analyst asked on the April earnings call about a practice that could increase the amount of controversial content pushed to users’ News Feeds, Zuckerberg downplayed the concern.

Meta’s spokesperson responded to the lawsuit in an email to Yahoo Finance, saying "This suit is without merit and we will defend ourselves vigorously.”

Under federal securities law, the lawsuit must show that Facebook or its executives intentionally lied at least once, or knowingly made one omission. The suit also has to show that the plaintiffs relied on these false statements or omissions when buying Facebook shares, and that false statements caused those shares to lose value.

The lawsuit is one of multiple suits against Facebook arising out of the Haugen disclosures and alleging federal securities law violations for failing to disclose internal research about its platforms.

Alexis Keenan is a legal reporter for Yahoo Finance. Follow Alexis on Twitter @alexiskweed.