The US Supreme Court has agreed to consider killing a major shareholder lawsuit against Meta Platforms (NASDAQ:META), which accuses the company of misleading investors about the Cambridge Analytica data-harvesting scandal.
The justices announced Monday that they will decide whether a federal appeals court erred in allowing the lawsuit to proceed based on claims that the company, then known as Facebook, inflated share prices by failing to adequately disclose the risk of user data misuse.
Investors argue that revelations about the scandal led to two significant price drops in 2018, costing the company over $200 billion in market capitalization. According to Bloomberg News, the case has the potential to redefine the legal standards for corporate disclosure.
Business groups, including the Chamber of Commerce, have urged the court to take up the case, arguing that risk-disclosure allegations “have contributed to a wave of meritless securities-fraud suits.”
Since 2005, the Securities and Exchange Commission (SEC) has required companies to disclose material factors that could make an investment risky.
The first indication of the Cambridge Analytica controversy surfaced in December 2015 when The Guardian reported that the British firm used a database of information from Facebook users to assist Senator Ted Cruz's presidential primary campaign. At the time, Facebook stated it was investigating.
The suing shareholders argued that Facebook quickly determined that Cambridge Analytica had obtained private information from more than 30 million users without their consent.
Analysts for Bloomberg Intelligence said that Meta could face a $2 billion settlement if the case goes to trial. The high court will hear arguments and issue a ruling during its nine-month term starting in October.
META shares rose 0.7% following the market open.