ARGUMENT ANALYSIS

Facebook first learned that Cambridge Analytica used a personality testing app to harvest tens of thousands of user data in 2015. (Katie Barlow)

The justices heard arguments Wednesday at Facebook v. Merged banktheir first securities deal of the year. The case concerns the 2015 Cambridge Analytica-Facebook data breach and examines whether Facebook’s disclosures to investors before the breach was public improperly downplayed the risks the data breaches posed to the company and its stock. his actions.

Shareholders sued Facebook in 2018 after learning that Cambridge Analytica had obtained the personal data of 30 million Facebook users. Shareholders claimed that Facebook misled them about the risks of their investment.

Although some judges seemed more receptive to Kannon Shanmugam’s (representing Facebook) argument, the dominant tone was skepticism. The headwinds began in the opening minutes of the argument, with Justice Clarence Thomas offering an offhand assessment that “a reasonable person” would assume, from a statement like Facebook’s, that nothing of that sort was serious about him. never happened.

Shanmugam quickly faced similar views from Justices Sonia Sotomayor and Ketanji Brown Jackson, who likened Facebook’s revelations to those of a landlord suggesting crime could pose a risk to property values. future, not to mention a series of recent burglaries in the neighborhood. To the casual observer, there aren’t many five-justice majorities that ignore these three justices.

This is not to say that everything was bad for Facebook. Chief Justice John Roberts and Justice Brett Kavanaugh were most reluctant to accept that this was enough to warrant a class-action lawsuit against Facebook. To Roberts, Facebook’s disclosure sounded more like a statement that you should be careful when you go down its steps because you might fall — a statement from which you could infer that someone had fallen in the past. For him, the subjectivity of determining what an investigator could infer from a particular disclosure constituted “a kind of blank check” for “going to trial to decide” how to interpret the disclosure.

Along the same lines, Kavanaugh found it essential that the Securities and Exchange Commission already has rules requiring companies to explicitly disclose many adverse past events in various disclosures — and that’s not on the list. To him, it makes no sense that “the judiciary…walks the plank on this…when the SEC could.” As he put it, “The SEC knows how to write regulations requiring disclosure of past events. …Why not let the SEC do that if they want to?

Past experience suggests that it is difficult to imagine a unanimous Supreme Court upholding a decision by the U.S. Court of Appeals for the 9th Circuit expanding liability under the securities laws. So I certainly wouldn’t want to overinterpret this argument. What I will say is that it wasn’t a convincing day for Meta. We will have to wait for the opinions in the spring to see what they really decide.

(Disclosure: Tom Goldstein, the publisher of SCOTUSblog, argued on behalf of the 9th Circuit investors but was not involved in the Supreme Court’s proceedings in this case.)