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Shareholders sue Facebook following whistleblower revelations

Facebook share prices plummeted after a whistleblower released details of the company’s behind-the-scenes practices and now investors are suing the social media giant for allegedly hiding the truth.

(CN) — Facebook and CEO Mark Zuckerberg face a federal class action challenge brought by shareholders Wednesday who say the tech giant’s leaders withheld information recently uncovered by a whistleblower.

“As a result of Defendants’ wrongful acts and omissions, and the precipitous decline in the market value of the Company’s securities, Plaintiff and other Class members have suffered significant losses and damages,” wrote attorneys Phillip Kim and Laurence Rosen of the Rosen Law Firm in a 28-page complaint against the company and its leadership. 

In the Eastern District of New York, the lawyers filed the federal securities lawsuit on behalf of all people or entities who purchased publicly traded Facebook securities between Nov. 3, 2016 and Oct. 4, 2021.

“The thing I saw at Facebook over and over again was there were conflicts of interest between what was good for the public and what was good for Facebook,” Frances Haugen,  a former product manager for Facebook, said during a "60 Minutes" interview on Oct. 3. 

“And Facebook, over and over again, chose to optimize for its own interests, like making more money,” the whistleblower added. 

Two days later, Haugen appeared before the Senate Commerce Subcommittee on Consumer Protection, Product Safety and Data Security to describe what she had observed while working for Facebook.

Haugen, who formerly worked for Facebook as a counter-espionage expert and lead project manager for civic misinformation, had released several internal documents in September that sparked high-profile news stories — alarming shareholders as they watched prices plunge. 

According to Wednesday’s lawsuit, Facebook’s share price dropped $16.78 per share, or about 4.9% as a result of the whistleblower’s early October statements.

The shares went from closing at about $343 on the first of October to closing at $326.23 on Oct. 4, the next trading day.  

“From the first WSJ article published on September 13, 2021, to the final disclosure on October 4, 2021, Facebook share prices fell by $55.45, or over 14%, damaging investors,” the attorneys wrote.

The shareholders claim that Facebook officials misrepresented the company’s actions and made false statements that caused the market price of the company’s securities to be artificially inflated.

The shareholders say they remained unaware of the alleged artificial inflation “scheme” until Haugen’s claims entered the limelight. 

“Had Plaintiff and the other members of the Class been aware that the market price of the Company’s securities had been artificially and falsely inflated by the Company’s and the Individual Defendants’ misleading statements and by the material adverse information which the Company’s and the Individual Defendants did not disclose, they would not have purchased the Company’s securities at the artificially inflated prices that they did, or at all,” the attorneys wrote. 

 Among other claims, Haugen said the company dissolved a department called “Civic Integrity” weeks after the tumultuous 2020 presidential election. 

She pointed to the move as a contributing factor to the deadly Jan. 6 attack on the U.S. Capitol, which was partially fueled by online extremism, because the doomed department had worked to mitigate risks to elections, including misinformation.

Wednesday’s complaint notes that, additionally, Haugen released documents showing that youth and teens, a critical demographic for advertisers, are deliberately targeted for Instagram in order to bring their family members onto Facebook platforms.

Facebook has publicly expressed skepticism pertaining to Haugen’s knowledge of the company’s inner workings, noting that the whistleblower worked there for less than two years. 

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Categories / Business, Consumers, Media, Securities

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