Facebook was sued last week in the U.S. District Court for the Northern District of California by Republican Ohio Attorney General Dave Yost, who alleges that the tech giant deceived investors into increasing its stock price.
Yost brought the action for the Ohio Public Employees Retirement System (OPERS), a state agency that has invested millions of dollars in Facebook stock on behalf of its members. The complaint in the case is also named as defendants Facebook executives Mark Zuckerberg, Nick Clegg, and David Wehner.
The complaint alleges that Facebook and the named executives violated federal securities laws between April and October of this year by “purposely misleading the public” about the adverse effects the company has had on the “health and well-being of children.” It also claims that Facebook has misled the public about its steps to protect the public and inflated its users’ numbers, thereby committing fraud against investors.
The lawsuit says that Facebook has “knowingly exploited its most vulnerable users” to increase its profits and lied about its steps to protect children and stop the spread of harmful content.
The complaint alleges that investors only learned the facts when a whistleblower and former Facebook employee Frances Haugen provided documents to the Wall Street Journal showing that the company knowingly refused to correct issues related to illegal activities and violent content harmful to children. Haugen independently filed eight Securities and Exchange Commission complaints against Facebook last month, making similar allegations.
The Ohio case alleges that Facebook made false reassurances to investors that the company had the “most robust” content policies and overstated the “aggressive steps” it claimed to have taken to ensure user security and safety. It also claims that the defendants made false statements about its declared commitment to “enforce its content policies evenly across all users.”
The lawsuit alleges that Facebook deceived investors, leading to “artificially inflated prices,” which damaged the retirement fund and other investors when the company’s stock price fell as the facts were revealed to the public. The complaint alleges that a decline in the company’s stock price of at least 14 percent occurred due to the whistleblower’s revelations.
In addition to financial damages, the lawsuit seeks an order compelling Facebook to “make significant reforms” to correct its misleading practices. The case seeks certification as a class action to include all persons and entities who purchased Facebook stock when the alleged fraudulent conduct existed. An estimated two billion shares of Facebook stock could be implicated in the case and are allowed to proceed as a class action.