First, stunning whistleblower leaks. Now a shareholder lawsuit lands on Zuckerberg's desk

We dubbed it the Antisocial Network – and it appears we were right


Facebook on Wednesday was sued for allegedly violating federal securities laws in the first of what's likely to be many such claims arising from internal documents revealed by former employee and whistleblower Frances Haugen.

Less than a day earlier, Facebook reportedly told its employees in an internal email to "preserve internal documents and communications since 2016," due to its expectation of regulatory scrutiny and litigation.

The lawsuit [PDF], which also names CEO Mark Zuckerberg and CFO David Wehner as defendants, was filed in the Eastern District of New York. It contends that the company and its executives over the past five years repeatedly made false and misleading statements to investors, citing news reports that have emerged since mid-September about the apparent divergence between the company's public communication and its internal discussions.

That's when the Wall Street Journal published the first of nine articles based on material provided by Haugen, whose tranche of company documents and testimony have left Facebook scrambling to defend itself as other news organizations have delved into what's become known as The Facebook Papers.

The complaint, which aspires to be certified as a class action on behalf of those who bought Facebook securities, argues that antisocial network:

  • misrepresented its user growth;
  • should have disclosed how much growth came from duplicate accounts;
  • "did not provide a fair platform for speech" by giving VIPs special treatment;
  • failed to adequately respond to drug cartels, human traffickers, and violent organizations;
  • and actively tried to woo pre-teens.

By not being forthright with investors about such matters, the complaint argues that Facebook violated the Securities Exchange Act of 1934.

The complaint, brought by shareholder Wee Ann Ngian, recounts statements Haugen made to the press about how Facebook incentivizes hate, which shows up in company metrics as increased interaction.

"Haugen said Facebook's algorithm optimizes for content that generates engagement," the complaint says. "That's led to publishers, 'realizing that if they produce more content that is angry and divisive and polarizing, they’ll get more views,' in her words."

And what's been revealed about Facebook's operations, the court filing says, has harmed investors.

"As a result of the October 3 and 4 revelations, Facebook’s share price dropped $16.78 per share, or approximately 4.9 per cent, from closing at $343.01 on October 1, 2021, the prior trading day, to close at $326.23 on October 4, 2021," the complaint says. "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 per cent, damaging investors."

But the revelations have continued and Facebook, which on Monday reported its Q3 2021 earnings, saw its share price slip further still to $312.22 on Wednesday.

The US Security and Exchange Commission has refused to say whether it is investigating Facebook, but according to the New York Times, at least nine whistleblower complaints have been lodged with the agency against the company.

Facebook did not immediately respond to a request for comment.

And more to come

During the company's earnings call, Zuckerberg attributed the "revenue headwinds" in part to Apple's iOS privacy controls and addressed what he referred to as "the recent debate about our company" by implying that critical reports treated Facebook unfairly.

"Good faith criticism helps us get better," he said [PDF]. "But my view is that what we're seeing is a coordinated effort to selectively use leaked documents to paint a false picture of our company."

Nonetheless, the sort of reporting that Facebook considers unfair keeps coming: The Associated Press on Wednesday said Facebook in March last year ignored, or delayed implementing changes proposed by employees to curtail the spread of anti-vaccine content.

And a review of the allegations arising from The Facebook Papers – which indicate that Facebook has failed to responsibly police election misinformation, QAnon conspiracies, famous people, incitements to violence, human trafficking, malicious posting of child nudity to trigger account shutdowns, and hate content – suggests the company has a lot of challenges to address.

It's also struggling to hire enough engineers to meet internal demand.

Zuckerberg during the earnings call argued that "polarization started rising in the US before I was born" and that "independent research shows that many countries around the world have flat or declining polarization, despite similar social media use there."

"The reality is, if social media is not the main driver of these issues, then it probably can't fix them by itself either," he said.

No one is arguing that social media has to fix the monetization of hate on its own – the government clearly wants to help and now private citizens are looking to lend a hand by litigating or turning away from social media.

But the reality is that Facebook is the main driver of these issues as they're expressed on the company's platform. ®

Similar topics


Other stories you might like

  • Prisons transcribe private phone calls with inmates using speech-to-text AI

    Plus: A drug designed by machine learning algorithms to treat liver disease reaches human clinical trials and more

    In brief Prisons around the US are installing AI speech-to-text models to automatically transcribe conversations with inmates during their phone calls.

    A series of contracts and emails from eight different states revealed how Verus, an AI application developed by LEO Technologies and based on a speech-to-text system offered by Amazon, was used to eavesdrop on prisoners’ phone calls.

    In a sales pitch, LEO’s CEO James Sexton told officials working for a jail in Cook County, Illinois, that one of its customers in Calhoun County, Alabama, uses the software to protect prisons from getting sued, according to an investigation by the Thomson Reuters Foundation.

    Continue reading
  • Battlefield 2042: Please don't be the death knell of the franchise, please don't be the death knell of the franchise

    Another terrible launch, but DICE is already working on improvements

    The RPG Greetings, traveller, and welcome back to The Register Plays Games, our monthly gaming column. Since the last edition on New World, we hit level cap and the "endgame". Around this time, item duping exploits became rife and every attempt Amazon Games made to fix it just broke something else. The post-level 60 "watermark" system for gear drops is also infuriating and tedious, but not something we were able to address in the column. So bear these things in mind if you were ever tempted. On that note, it's time to look at another newly released shit show – Battlefield 2042.

    I wanted to love Battlefield 2042, I really did. After the bum note of the first-person shooter (FPS) franchise's return to Second World War theatres with Battlefield V (2018), I stupidly assumed the next entry from EA-owned Swedish developer DICE would be a return to form. I was wrong.

    The multiplayer military FPS market is dominated by two forces: Activision's Call of Duty (COD) series and EA's Battlefield. Fans of each franchise are loyal to the point of zealotry with little crossover between player bases. Here's where I stand: COD jumped the shark with Modern Warfare 2 in 2009. It's flip-flopped from WW2 to present-day combat and back again, tried sci-fi, and even the Battle Royale trend with the free-to-play Call of Duty: Warzone (2020), which has been thoroughly ruined by hackers and developer inaction.

    Continue reading
  • American diplomats' iPhones reportedly compromised by NSO Group intrusion software

    Reuters claims nine State Department employees outside the US had their devices hacked

    The Apple iPhones of at least nine US State Department officials were compromised by an unidentified entity using NSO Group's Pegasus spyware, according to a report published Friday by Reuters.

    NSO Group in an email to The Register said it has blocked an unnamed customers' access to its system upon receiving an inquiry about the incident but has yet to confirm whether its software was involved.

    "Once the inquiry was received, and before any investigation under our compliance policy, we have decided to immediately terminate relevant customers’ access to the system, due to the severity of the allegations," an NSO spokesperson told The Register in an email. "To this point, we haven’t received any information nor the phone numbers, nor any indication that NSO’s tools were used in this case."

    Continue reading

Biting the hand that feeds IT © 1998–2021