Nvidia, Meta Ask Supreme Court To Axe Investor Lawsuits

The US Supreme Court is to hear two separate cases this month by Nvidia and Facebook parent Meta Platforms that both seek to derail class-action investor lawsuits, with the the decisions potentially affecting investors’ ability to hold companies accountable for alleged corporate misconduct.

The cases follow three rulings in June by the 6-3 conservative majority top court that weakened the power of regulators, including the Securities and Exchange Commission.

Both companies appealed to the Supreme Court after the 9th US Circuit Court of Appeals in San Francisco allowed class-action securities fraud lawsuits to proceed against them.

The Meta case is set for a hearing on Wednesday, with the Nvidia case following a week later.

Investor ire

Meta’s case involves two stock price collapses in 2018 that removed some $200 billion (£154bn) from the company’s market capitalisation.

The first came after news reports detailed the use of Facebook user data by political consulting firm Cambridge Analytica to boost Donald Trump’s presidential campaign, while the second followed additional reporting about Facebook’s practice of providing user data to Apple, Microsoft and dozens of other third parties without user consent.

The suit alleges that long after the Cambridge Analytica data breach became known to Facebook leadership, the company continued to mention the possible harm from such a breach in hypothetical terms in documents such as regulatory filings.

Meta, then known as Facebook, agreed in 2019 to pay $5.1bn in civil penalties to settle charges by the Federal Trade Commission (FTC) and the SEC over the scandal and paid more than $725m to settle a separate class-action lawsuit by users.

Disclosure rules

The shareholder lawsuit, brought in California by investors led by Amalgamated Bank, alleges Facebook leadership knew of Cambridge Analytica’s improper data access as far back as 2015.

US District Judge Edward Davila dismissed the lawsuit in 2021 but it was later restored by the 9th US Circuit Court of Appeals.

“The problem is that Facebook represented the risk of improper access to or disclosure of Facebook user data as purely hypothetical when that exact risk had already transpired,” wrote Judge Margaret McKeown in the latter decision.

Meta said companies should not be required to inform investors of past incidents that did not affect the company’s bottom line.

The company said the 9th Circuit’s decision would “force public companies to inform investors of past incidents that pose no known threat to the business”.

Crypto sales

A separate investor lawsuit alleges Nvidia chief executive Jensen Huang made false statements concealing the company’s reliance on the volatile market through sales to crypto miners.

The lawsuit says that investors lost out when Nvidia’s stock price dropped after investors became aware that many of the company’s GPU accelerator customers were crypto miners.

In its Supreme Court filing, Nvidia said the plaintiffs had not met the requirements of the Private Securities Litigation Reform Act of 1995, which seeks to weed out nuisance securities lawsuits.

“The Ninth Circuit’s lax interpretation renders the PSLRA toothless,” the company said.

It said the decision could “open the floodgates” to new securities fraud lawsuits, threatening to “take the nation back to the pre-PSLRA era when ‘nuisance filings’ were ‘rampant'”.

In 2022 Nvidia paid $5.5m to the SEC to settle charges it did not properly disclose the impact of crypto mining on its sales.