Meta Investors Want Zuckerberg to Reimburse the Company

Meta shareholders want Mark Zuckerberg (and a few other familiar faces) to pay for the company’s sins. Literally.

In a trial that kicks off this week, a group of Meta investors are suing Zuck and a who’s who of current and former company executives for actions the company took during the Cambridge Analytica scandal back in 2018 that they say has cost the company billions of dollars. It’s the second instance this year of scorned shareholders going directly after Big Tech executives for instances of failed compliance.

Memory Lane

Let’s flashback to over a decade ago. Back in 2012, Meta (then known simply as Facebook), entered into a consent agreement with the Federal Trade Commission concerning how it shares user data with third parties. By late 2015, The Guardian reported that political consulting firm Cambridge Analytica had harvested the data of millions of Facebook users without their informed consent. By 2018, further reporting revealed the extent of Cambridge Analytica’s data harvesting, which triggered a $100 billion wipeout from the company’s market cap. By 2019, the FTC slapped Facebook with a record $5 billion fine for violating the 2012 agreement.

Now, a group of plaintiff Meta investors are seeking to prove whether Zuckerberg and other company leaders completely failed in their duty of oversight, alleging the company knowingly violated the FTC order at the direction of Zuckerberg. If successful, the plaintiffs want Zuckerberg and friends to reimburse the company around $8 billion to cover the FTC fine and related costs. That list of co-defendants includes board member Marc Andreessen, former chief operating officer Sheryl Sandberg, former board member and Netflix co-founder Reed Hastings, as well as former board member (and current Palantir board member/human species skeptic) Peter Thiel, among others. Meta, the company, is not a defendant.

Legal experts told Reuters the trial appears to be the first-ever to proceed under the claim that directors “utterly failed in their oversight duties,” which is considered incredibly hard to prove in corporate law. However, the head honchos over at Alphabet, dealing with their own investor legal fight this year, can tell you that it’s not unique for executives’ judgment to fall under legal scrutiny:

• In that case, shareholder plaintiffs accused Alphabet executives of breaching their fiduciary duty by exposing the company to antitrust liability (US judges have found in the past year that Alphabet operated and maintained illegal monopolies in both the search and digital advertising industries, possibly resulting in a company break-up later this year).
• In June, the company settled with the shareholders, and agreed to spend $500 million in the next ten years to overhaul its compliance structure and create a new committee to oversee compliance issues.

“These reforms, rarely achieved in shareholder derivative actions, constitute a comprehensive overhaul of Alphabet’s compliance function,” the plaintiffs’ lawyers told Reuters following the settlement agreement.

Private Practice: The Meta lawsuit comes as the company faces renewed scrutiny over its user privacy policies, including questions about whether user data is being used to train the company’s AI models. Which means that, ten years from now, we may be serving up yet another refresher of a Meta scandal you’ve already forgotten about.