Trial Begins in Shareholder Suit Over Facebook’s $5 Billion FTC Fine

The case stems from fallout surrounding the Cambridge Analytica scandal, which erupted in 2018 after it was revealed that the political consultancy had improperly accessed data from millions of Facebook profiles. At the time, the FTC fined Facebook $5 billion, claiming the company had violated a consent decree requiring stronger safeguards for user privacy.

Now, Meta shareholders argue that top executives—including Zuckerberg, former COO Sheryl Sandberg, and prominent board members like venture capitalist Marc Andreessen and Palantir co-founder Peter Thiel—should be held financially responsible for the regulatory penalties and related legal costs. These costs, shareholders say, total more than $8 billion.

The non-jury trial, overseen by Delaware Chancery Court Chief Judge Kathaleen McCormick, began with testimony from privacy law scholar Neil Richards of Washington University. Richards, appearing on behalf of the plaintiffs, asserted that Meta misrepresented its privacy practices. “Facebook’s privacy disclosures were misleading,” he told the court, per Reuters.

Read more: Zuckerberg Set to Testify in $8 Billion Trial Over Facebook Data Practices

More high-profile testimonies are expected in the days ahead, including from Zuckerberg himself, Sandberg, Andreessen, Thiel, and Netflix co-founder Reed Hastings. Also slated to appear is Jeffrey Zients, the current White House chief of staff and a former Meta board member, who joined the board in 2018. He was expected to take the stand Wednesday afternoon.

Meta, while not named as a defendant in the suit, has publicly stated it has poured billions into user data protections since 2019. The company declined to comment on the litigation. According to Reuters, Meta’s website affirms its ongoing commitment to privacy investment.

Defendants in the case have pushed back strongly, characterizing the allegations as exaggerated. They argue that Facebook employed outside consultants to ensure compliance with the FTC order and contend the company itself was misled by Cambridge Analytica’s tactics, not complicit in the misuse of data.

The lawsuit marks a rare instance of a so-called “Caremark” claim going to trial. Such claims accuse corporate board members of failing in their duty to monitor and manage the company’s legal and regulatory compliance risks. Though traditionally difficult to prove in Delaware—where most U.S. corporations are incorporated—these cases have been gaining traction in recent years. Notably, Boeing directors settled a similar suit in 2021 for $237.5 million, though they admitted no wrongdoing.

The Meta trial unfolds amid a changing corporate legal landscape in Delaware. Earlier this year, lawmakers amended corporate statutes to make it harder for shareholders to challenge transactions involving controlling shareholders, such as Zuckerberg. Though the recent legislation doesn’t affect Caremark claims directly, it followed meetings between Delaware’s governor and Meta representatives, per Reuters.

Adding to the intrigue, Andreessen Horowitz—the venture capital firm co-founded by Marc Andreessen—announced this month that it had moved its incorporation from Delaware to Nevada, citing legal uncertainty in the state, particularly following Judge McCormick’s high-profile decision to nullify Elon Musk’s $56 billion Tesla compensation package last year.

Andreessen is scheduled to testify Thursday as the trial continues.

Beyond the privacy issues, the suit also alleges that Zuckerberg sought to shield himself financially by selling Facebook stock before the Cambridge Analytica revelations became public—an alleged move that may have netted him over $1 billion.

Source: Reuters