The U.S. Supreme Court is set to consider bids from two tech giants — Facebook’s Meta and Nvidia — to fend off federal securities fraud lawsuits in separate cases that could make it harder for private litigants to hold the companies accountable.
After three Supreme Court rulings in June that weakened federal regulators – including the Securities and Exchange Commission, which monitors securities fraud – justices may now be willing to rein in the power of private plaintiffs to enforce federal rules that… It aims to punish corporate misconduct.
The Supreme Court’s recent record of issuing business-friendly decisions that have narrowed the power of federal regulators suggests that Facebook and Nvidia may similarly find a “receptive audience” before the justices, said Andrew Feller, a former SEC attorney who is now in private practice.
The Supreme Court has a 6-3 conservative majority.
“I believe business interests will continue their recent pattern of aggressively challenging rules intended to hold them accountable, including by challenging remaining private rights at work,” Feller said.
A private right of action refers to the ability of a private person or group to bring a lawsuit over an alleged harm.
Social media platform Facebook and artificial intelligence chip maker Nvidia appealed to the Supreme Court after the San Francisco-based U.S. 9th Circuit Court of Appeals allowed separate securities fraud class actions to be filed against them.
The Supreme Court on Wednesday is scheduled to hear arguments in Facebook’s attempt to dismiss a lawsuit accusing the company of misleading investors in violation of the Securities Exchange Act, a 1934 federal law that requires publicly traded companies to disclose their business risks.
The plaintiffs, a group of Facebook investors led by Amalgamated Bank, accused the company in a 2018 class action of withholding information from investors about a 2015 data breach involving British political consulting firm Cambridge Analytica that affected more than 30 million Facebook users.
The lawsuit arose after Facebook shares fell following 2018 media reports that Cambridge Analytica used improperly collected Facebook user data in connection with Donald Trump’s successful 2016 presidential campaign. The suit seeks unspecified monetary damages in part to make up for the lost value of the shares. Facebook retained. By investors.
At issue is whether Facebook broke the law when it failed to provide details of the prior data breach in subsequent business risk disclosures, instead portraying the risks of such incidents as purely hypothetical.
In its filing with the Supreme Court, Facebook argued, among other things, that it was not required to indicate that its risk warning had actually come true because “a reasonable investor would understand that (the risk disclosure) is of a forward-looking and probabilistic nature.”
The SEC in 2019 filed an enforcement action against Facebook over the matter, which the company settled for $100 million (about Rs 841 crore). Facebook has paid a separate $5 billion (about Rs 42,054 crore) fine to the US Federal Trade Commission over the Cambridge Analytica case.
Michael Perino, a professor at St. John’s University School of Law in New York, described private rights of action as a “necessary complement” to public enforcement efforts.
“The SEC is arguably under-resourced given the broad scope of its responsibilities,” Perino said. “Securities class action lawsuits effectively authorize private attorneys to bring suits on behalf of harmed investors.”
Nvidia Crypto related purchases
The Supreme Court on November 13 is scheduled to hear arguments in Nvidia’s attempt to thwart a securities class action lawsuit that accuses the Santa Clara, California-based company of misleading investors about how much of its sales went into the volatile cryptocurrency industry.
The 2018 lawsuit, led by Stockholm-based investment management firm E. Ohman J:or Fonder AB, accused Nvidia of violating securities law by making statements in 2017 and 2018 that falsely understated how much of the company’s revenue growth came from cryptocurrencies. Related.
Prosecutors said these omissions misled investors and analysts who were interested in understanding the impact of cryptocurrencies on Nvidia’s business.
In its filing with the Supreme Court, Nvidia said the plaintiffs failed to cross a legal bar set in a 1995 federal law called the Private Securities Litigation Reform Act that set the standard for bringing private securities fraud claims.
Nvidia in 2022 agreed to pay $5.5 million (about Rs 46 crore) to US authorities to settle charges that it did not properly disclose the impact of cryptocurrency mining on its gaming business.
Securities lawsuits could gain prominence because of recent Supreme Court rulings that have weakened federal regulators, said David Shargill, a private attorney who has represented clients before the SEC.
Among the cases Sharjeel cited was a June 27 decision that rejected the SEC’s internal enforcement of laws protecting investors from securities fraud as a violation of the U.S. Constitution’s Seventh Amendment right to a jury trial.
“This could further tax the SEC’s resources, as well as those of other agencies looking to bring fraud-like claims, opening the door to more private litigation,” Shargel said of the SEC.
“I think it is difficult to predict exactly where the special measures will go, but it is not difficult to imagine that they may gain greater importance,” Sharjeel added.
© Thomson Reuters 2024
(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)
