05/Facebook faces allegations of securities fraud

Facebook Inc., now rebranded as Meta Platforms Inc., has courted its fair share of
controversy of late, including allegations that it misled investors about the role its products
play in a multitude of societal ills. And some experts think that brewing accusations of
securities fraud could soon spell trouble for the company whose onetime motto was “Move
fast and break things."
Before she left her job as a product manager at Facebook, Frances Haugen copied thousands
of pages of internal research documents allegedly showing the behemoth social media
company’s role in promoting hate speech and political violence and harming the mental
health of teenagers. Haugen claimed that Facebook knows discord gets more engagement
from users and thus chose profits over the safety of its roughly 2.9 billion active users.
(See “Number of monthly active users worldwide as of 3rd quarter of 2021,” statista,
October 2021.)
Haugen shared the documents with the U.S. Securities and Exchange Commission (SEC) and
sought whistleblower protection from her former employer. Experts say the public attention
combined with SEC Chair Gary Gensler’s priority to improve corporate disclosures could
spur the regulator to act against Facebook. (See “Facebook is drawing a bipartisan
backlash from Congress, but the SEC could deliver a tougher blow,” by Tory
Newmeyer, The Washington Post, Oct. 8, 2021.)
In late October 2021, shareholders filed a lawsuit based on Haugen’s revelations, claiming
Facebook and its senior executives misrepresented the company’s decisions to investors and
made false statements that artificially inflated the market price of the company’s securities.
(See “Shareholders sue Facebook following whistleblower revelations,” by Erika
Williams, Courthouse News, Oct. 27, 2021.)
In November, Ohio’s Attorney General Dave Yost along with the state’s largest pension fund
also sued the company, following the same line of reasoning. “Facebook in its own internal
review said we’re not doing the things that we’re saying we’re doing publicly,” Yost was
quoted saying. “And that is the ultimate definition I think of fraud: saying one thing and
doing another.” (See “Facebook’s own words are the ‘ultimate definition of fraud,’ says
Ohio attorney general,” by Alexis Keenan, yahoo!finance, Nov. 16, 2021.)
Haugen’s lawyers claim the documents show Facebook wasn’t honest with investors about its
fear of losing younger users and its concerns about duplicate accounts created by individual
users. For example, one Facebook study showed more accounts for young adults in the U.S.
than actual people. (See “Facebook Faces a Public Relations Crisis. What About a
Legal One?” by Cecilia Kang, The New York Times, Oct. 29, 2021.)
Laws have also been introduced in Congress that could weaken the company’s legal
protections, and shareholders have filed a resolution to dilute CEO Mark Zuckerberg’s
power. More trouble could be ahead. (See “Facebook to Meta: A new name but the same
old problems,” by Queenie Wong, c/net, Oct. 30, 2021.)
Facebook whistleblower Frances Haugen testifies before lawmakers at the
Russell Senate Office Building on Oct. 5, 2021, in Washington, DC. (Photo by
Matt McClain/Getty Images)
c

references

5 most scandalous fraud cases of 2021 - Fraud Magazine

https://www.fraud-magazine.com/article.aspx?id=4295016799