Meta Hit with Class Action Over Facebook Stock Price Drops Linked to Whistleblower Revelations

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Meta Platforms faces a proposed class action wherein an investor alleges the company, known formerly as Facebook, has falsely and repeatedly touted its ability and commitment to preventing the spread of misinformation, criminal activity and other toxic content while at the same time concealing its alleged dependence on that content to drive revenues. 

Central to the 23-page complaint is a series of Wall Street Journal articles based on documents provided to the publication and the Securities and Exchange Commission (SEC) by whistleblower Frances Haugen, a former Facebook employee. The fallout from Haugen’s disclosures saw Facebook share prices drop on September 17 and 22 and October 1 and 21, 2021, the lawsuit says, claiming investors were injured financially as a result of Meta and its top execs’ “wrongful acts and omissions.” 

According to the complaint, the “truth about Defendants’ false and/or misleading statements” began to emerge when the WSJ published on September 13, 2021 the first in a series of articles dubbed “The Facebook Files.” Per the suit, the articles revealed that, among other things, Facebook exempted certain users, such as celebrities and politicians, from its standard enforcement rules designed to prevent users from engaging in harmful speech, and misled its own oversight board about the practice. 

Further, the WSJ revealed Facebook had long been aware that its Instagram platform was harmful to teenage users given it negatively affected body image and increased anxiety, depression and suicidal thoughts, the case says. The suit also relays that it was revealed that changes to Facebook’s algorithm resulted in “angrier and more divisive content,” and that the company declined to fix this problem “in order to prioritize increased user engagement.” 

The whistleblower’s disclosures also revealed decision makers within Facebook had ignored warnings that the company’s platforms are used to incite violence against ethnic minorities, lure vulnerable women into abusive situations and recruit hitmen, among other criminal activity, the lawsuit says. 

Moreover, Haugen and the WSJ reported that Facebook executives, including CEO Mark Zuckerberg, have been generally unable or unwilling to ensure that the company’s products do not cause harm, according to the complaint. 

“To the contrary, (secretly) increasing harmful content was central to growing Facebook’s business,” the securities suit alleges. 

In response to the first five articles in The Facebook Files series, Facebook common stock prices declined nearly $14 per share across five trading days, starting on September 10, 2021, the case says. 

On October 3, 2021, 60 Minutes broadcast an interview with Haugen, in which she revealed herself to be the whistleblower and stated that when presented with “conflicts of interest between what was good for the public and what was good for Facebook,” the company consistently chose to optimize for its own interests, the lawsuit continues. In this broadcast, Haugen also stated that Facebook quickly dropped its efforts to combat misinformation after the 2020 election in order to “prioritize growth over safety,” the suit says. After the interview, the price of Facebook common stock dropped nearly $17 per share on October 1, according to the case. 

Lastly, the WSJ reported during after-market hours on October 22 that Facebook was struggling to detect and combat users who create multiple accounts on its flagship platform, the case says. According to internal Facebook documents, the company said the “phenomenon” of single users with multiple accounts was very prevalent among newly created accounts, and indicated that at least 32 percent and as much as 56 percent of new sign-ups were opened by existing Facebook users, the lawsuit relays.

Upon this news, the price of Facebook common stock fell again, by more than $17 per share on October 21, the suit says.  

The case adds that the Washington Post on October 22 reported that a second Facebook employee, a former member of the company’s Integrity Team, submitted to the Securities and Exchange Commission a whistleblower affidavit in which they “echoed” many of the claims made by Haugen. 

The lawsuit looks to represent all persons or entities who purchased or otherwise acquired Facebook common stock between April 29 and October 21, 2021.

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