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April 5, 2018Download PDF

Facebook Faces Class Action Lawsuits For Mishandling User Data

Facebook is facing at least two class action lawsuits and an investigation by the Federal Trade Commission regarding its data privacy practices after the disclosure that tens of millions of Facebook users’ profile information was mishandled.

The story begins in 2014 and 2015, when Aleksandr Kogan, a researcher working with U.K. political advertising firm Cambridge Analytica, pulled data by creating a quiz app that Facebook users could choose to take. But the 270,000 users who opted in were told their answers would be used for academic research, which is allowed by Facebook, when in fact it was purportedly used for voter targeting. With the help of former Cambridge Analytica contractor Christopher Wylie, Kogan went on to harvest data (including where a user lived and what they “liked” on Facebook) not only on the 270,000 app users, but also on all of their Facebook friends. Facebook reported the data of approximately 87 million users was improperly shared with Cambridge Analytica, up from earlier estimates of roughly 50 million affected users.

Now, Facebook’s failure to protect user data is at the heart of two class action lawsuits, both filed in the U.S. District Court for the Northern District of California. The first case, Price v. Facebook, Inc. et al., case number 18-cv-01732, involves Facebook users suing both the social network and Cambridge Analytica over the “absolute disregard with which Defendants have chosen to treat Plaintiff’s Personal Information.” The suit was filed by Facebook user Lauren Price, who is suing on behalf of all U.S. Facebook users whose data was harvested by Cambridge Analytica without authorization or “in excess of authorization.” The proposed class seeks restitution, statutory damages, and injunctive relief for Facebook’s alleged negligence and breaches of California’s Unfair Competition Law.

The second case, Yuan v. Facebook, Inc. et al., case number 18-cv-01725, is a shareholder class action suit against Facebook, its founder and Chief Executive Officer, Mark Zuckerberg, and its Chief Financial Officer, David Wehner, for two violations of the Securities Exchange Act of 1934. Since news broke of the millions of Facebook users’ private data being harvested by Cambridge Analytica, the tech company lost almost $50 billion in market capitalization. The suit, filed by Facebook shareholder Fan Yuan, seeks compensation for the resulting financial losses suffered by people who bought shares of Facebook from February 2017 through March 19, 2018. Throughout that period, “Defendants made materially false and misleading statements regarding the Company's business, operational and compliance policies,” according to the complaint.

Facebook’s failure to safeguard its users’ privacy could also bring the company into the sights of federal regulators for violating a 2011 decree with the FTC to get express consent from users before sharing their data with third parties in a way that goes beyond a user’s privacy settings. Zuckerberg is scheduled to testify about Facebook’s handling of user data before the House Energy and Commerce Committee on April 11, 2018.

According to a statement from Facebook’s Vice President and Deputy General Counsel Paul Grewal: “We are committed to vigorously enforcing our policies to protect people’s information. We will take whatever steps are required to see that this happens. We will take legal action if necessary to hold them responsible and accountable for any unlawful behavior.” In subsequent statements, including from Zuckerberg, the social network reported it has banned Cambridge Analytica from using Facebook services, asked Cambridge Analytica to certify it had deleted the data, and is conducting internal investigations into the issue.

The simple take-away from this complicated story is that Facebook can look forward to increased scrutiny from users, investors, and lawmakers.