Meta Shareholders’ Lawsuit Against Zuckerberg Begins
WILMINGTON, Delaware – A trial kicking off involves an $8 billion lawsuit by Meta Platforms shareholders against Mark Zuckerberg and other leaders, asserting they improperly harvested Facebook user data, violating a 2012 agreement with the U.S. Federal Trade Commission (FTC).
The proceeding commenced with Neil Richards, a privacy expert from Washington University Law School, discussing Facebook’s data policies. He described the platform’s privacy disclosures as “misleading.”
Jeffrey Zients, the White House chief of staff under President Biden and a Meta director from May 2018, is expected to testify later in this non-jury trial before Judge Kathaleen McCormick of the Delaware Chancery Court.
Testimonies will also come from other high-profile defendants, including Zuckerberg, former Chief Operating Officer Sheryl Sandberg, and venture capitalist Marc Andreessen. Former board members like Peter Thiel and Reed Hastings are also involved.
While a lawyer for the defendants declined to comment, they have denied all allegations. Judge McCormick, known for overturning Elon Musk’s substantial Tesla pay package last year, will determine liability and damages several months after the trial ends.
This lawsuit originated in 2018, after it was revealed that the political consulting firm Cambridge Analytica had accessed data from millions of Facebook users during Trump’s 2016 presidential campaign. Following this scandal, the FTC fined Facebook $5 billion for breaching the 2012 agreement on user data protection.
Shareholders are aiming to have the defendants reimburse Meta for the FTC penalty and legal fees, which the plaintiffs estimate surpass $8 billion.
The defendants have labeled the claims as “extreme” and argue that Facebook engaged an external consulting firm to adhere to the FTC agreement, asserting that the platform was misled by Cambridge Analytica.
Meta itself is not a defendant and has refrained from commenting. However, the company has stated it has invested significantly in user privacy since 2019.
The lawsuit is notable as it is the first of its kind going to trial, claiming board members egregiously neglected their oversight responsibilities. Often termed a Caremark claim, these lawsuits are notoriously challenging to validate under Delaware corporate law, yet more of them have been permitted to proceed recently.
A past similar case involving Boeing resulted in a $237.5 million settlement, marking the largest such oversight claim to date, albeit with no admission of wrongdoing from the directors.
Interestingly, this trial comes shortly after Delaware’s lawmakers revamped corporate laws to complicate shareholder challenges against agreements with controlling shareholders like Zuckerberg. This reform was discussed after the governor met with Meta representatives.
Delaware remains a popular state for incorporation among publicly traded companies, accounting for a significant portion of the state’s budget. Although Meta briefly considered leaving this jurisdiction, it continues to be incorporated in Delaware.
Recently, Andreessen Horowitz, the venture capital firm co-founded by Andreessen, announced it would be moving its incorporation to Nevada, a shift attributed to concerns regarding Delaware’s legal environment.
Beyond the privacy issues central to the case, plaintiffs also claim that Zuckerberg anticipated the Cambridge Analytica fallout would impact Facebook’s stock, leading him to sell shares and earn over $1 billion. Defendants rebut this, stating that Zuckerberg adhered to a pre-planned stock trading strategy intended to prevent insider trading.
