In re Meta Platforms, Inc., Securities Litigation

Background

Ohio Public Employees Retirement System and PFA Pension Forsikringsaktieselskab brought a securities-fraud action under Sections 10(b) and 20(a) of the Securities Exchange Act against Meta Platforms, Inc., and individual defendants. The plaintiffs alleged that Meta and its executives made misleading statements about four areas: the cross-check or whitelisting program for influential users; Meta’s algorithm and content-moderation practices; Instagram’s effects on young users; and the number of duplicate accounts affecting Meta’s user-growth figures.

The defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which allows dismissal when a complaint does not adequately state a legal claim. Because this was a securities-fraud case, the plaintiffs also had to meet heightened requirements under Rule 9(b) and the Private Securities Litigation Reform Act. Those requirements called for specific facts identifying the alleged misleading statements, explaining why they were misleading, and supporting a strong inference that the defendants acted knowingly or with deliberate recklessness.

Section 10(b) Claims

The court dismissed the claims based on Statements 19, 22, and 33 because they were nonactionable opinions or generalized corporate optimism. It also dismissed claims based on Statements 1, 2, 3-7, 9, 12-14, 15, and 16 concerning cross-check. The court found that the plaintiffs relied too heavily on selective quotations from unidentified internal documents and did not provide enough detail about who prepared or reviewed the documents, their contents, or their reliability.

The court allowed the claims based on Statements 8 and 11 concerning cross-check to proceed. The complaint combined earlier reports with a 2021 Meta Oversight Board transparency report that acknowledged Meta had been misleading about how broadly cross-check applied. The court found those allegations sufficient at the motion-to-dismiss stage as to Meta, Mark Zuckerberg, and Nick Clegg.

The court dismissed the claims based on Statements 17-18 and 21-25 concerning Meta’s algorithm. It found that the allegations did not adequately show that the statements were false when made. The court also dismissed the claims based on Statements 27-39 concerning content moderation, finding that the plaintiffs had not adequately alleged that those statements were false or misleading.

The court dismissed claims based on Statements 40, 42, 44, and 50 concerning Instagram and young users. However, it found that the plaintiffs adequately alleged that Statements 41, 43, 45-48, and 51-56 were false or misleading. These statements concerned, among other things, Meta’s research about Instagram’s effects on teenagers, its child-safety efforts, and its work with experts. The court found the allegations sufficient to proceed as to Meta, Zuckerberg, Angione Davis, and Karina Newton for the statements identified in the conclusion.

The court dismissed all claims based on Statements 57-60 concerning daily and monthly active users and duplicate accounts. The plaintiffs relied on a small sample of approximately 5,000 new accounts, but did not allege that the sample could be applied broadly to Meta’s overall user figures or identify who created the supporting presentation.

Scienter and Loss Causation

“Scienter” means the required state of mind for securities fraud, such as an intent to deceive or deliberate recklessness. The court found a strong inference of scienter for Zuckerberg and Clegg regarding the surviving cross-check claims because the plaintiffs alleged that both were personally involved in cross-check decision-making and made detailed statements about it. The court found the scienter allegations insufficient as to the other defendants for those claims.

For the surviving Instagram-related claims, the court found a strong inference of scienter as to Zuckerberg, Newton, and Davis. It relied on allegations that they publicly and directly addressed Meta’s research concerning Instagram’s effects on children and teenagers. The court found the allegations insufficient as to Adam Mosseri and Pavni Diwanji. It also stated that the plaintiffs did not adequately plead scienter as to Mark Zuckerberg, David Wehner, Nick Clegg, Adam Mosseri, Guy Rosen, Andy Stone, Angione Davis, Karina Newton, Yann LeCun, Monika Bickert, or Pavni Diwanji except as specified in its analysis of the surviving claims.

“Loss causation” means a causal connection between the alleged deception and the investors’ losses. The court found that the plaintiffs adequately alleged loss causation for the surviving cross-check and Instagram-related claims. The complaint alleged that disclosures about cross-check and Instagram’s effects on young users were followed by declines in Meta’s stock price.

Section 20(a) Claims and Disposition

Section 20(a) can impose liability on certain controlling individuals for an underlying securities-law violation. The court held that the Section 20(a) claim rises and falls with the Section 10(b) claim. It therefore dismissed the Section 20(a) claim with leave to amend to the same extent as the Section 10(b) claim, while allowing it to survive consistently with the viable portion of the Section 10(b) claim.

Judge Araceli Martinez-Olguin granted in part and denied in part the motion to dismiss. The court denied dismissal of the claims based on Statements 8 and 11 as to Meta, Zuckerberg, and Clegg, and Statements 41, 43, 45-48, and 51-56 as to Meta, Zuckerberg, Newton, and Davis. The court dismissed the claims based on Statements 19, 22, and 33 as a matter of law, and dismissed with leave to amend the claims based on the remaining statements and as to the remaining defendants. Any amended complaint had to be filed by October 30, 2024. No additional parties or claims could be added without the court’s permission or the defendants’ stipulation.