Facebook Faces Shareholder Lawsuit Over Cambridge Analytica Data Security Concerns

Dani Alexis Ryskamp, J.D.

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— Updated on June 23, 2020

Facebook Faces Shareholder Lawsuit Over Cambridge Analytica Data Security Concerns

Facebook Shareholder Lawsuit

Stock market audiences throughout the world watched as Facebook’s shares took a nosedive recently amid concerns that the company had mishandled user data. Now, the company also faces multiple lawsuits over those concerns.

After news that data analytics firm Cambridge Analytica had accessed Facebook data of about 50 million users, Facebook’s stock dropped 7.8 percent, effectively wiping out all the company’s 2018 stock market gains, estimates Fast Company. Shareholder lawsuits followed quickly on the stock market news.

What’s Happening With Facebook’s Lawsuits

One class-action lawsuit argues that Facebook made “materially false and/or misleading” claims about its handling of user data. Another, filed in Northern California, alleges that Facebook’s senior managers “breached their fiduciary duties by failing to prevent the initial misappropriation [of user data] and, after learning of it in 2015, failing to inform affected Facebook users or the public markets.”

Facebook has lost about $50 billion in market capitalization since news of the Cambridge Analytica data leak reached the public. The shareholder lawsuits blame this loss on reputation damage caused by Facebook’s alleged cover-up of its data leaks. They also mention further costs the company may face as a result of the leaks, “including regulatory investigations, lost business, exposure to litigation, and other damages.”

Shareholders aren’t the only ones filing lawsuits. A proposed class action has also been filed in California to represent Facebook users. The claim seeks damages from the company for failing to protect user data, according to TechCrunch.

The claims arise from instances in which Facebook or its founder, Mark Zuckerberg, addressed privacy and security issues without mentioning Cambridge Analytica. Currently, Cambridge Analytica is believed to have used personal data from 50 million Facebook users in order to run an online ad spending campaign, whose focus appears to be the 2016 election.

Further complicating the questions surrounding elections and data leaks is the fact that Facebook board member Peter Thiel donated $1 million to a pro-Trump super PAC in 2016. Later that same year, the same super PAC paid Cambridge Analytica $231,352, according to an FEC filing.

The lawsuits aren’t the only source of investigations into Facebook’s user data activities, either. The Federal Trade Commission (FTC) has launched an investigation into the connection between Facebook and Cambridge Analytica, including whether Facebook has violated the terms of a 2011 consent decree that required the company to tell users before it shared their data with third parties.

Members of Congress are raising their voices as well: Representative Adam Schiff (D-CA) told one news outlet that “the dark arts have arrived in full force online and they need to be ferreted out.”

Data Collection in the Age of “Which Boy Band Are You?” Quizzes

Central to the concerns about Facebook’s data leaks are the vast number of apps and online quizzes that link with a user’s Facebook profile. Most of these seem harmless or even fun: They include games and quizzes that link user’s photos to particular works of art or ask questions to match users up with everything from primordial elements to members of popular bands.
However, many users don’t realize that these games, apps, and widgets can access a great deal of information, which may be vulnerable to use by third parties.

Recently, the New York Times and the Observer of London reported how a University of Cambridge psychology professor had developed a Facebook app that gained Cambridge Analytica access to user information for as many as 50 million Facebook users. Facebook acknowledged that 270,000 people had downloaded and used that same survey app.

In the face of the Cambridge Analytica news, Facebook has stated that it will audit apps accessing a large amount of user data at the same time as the Cambridge Analytica app. Many commentators expect the audit to reveal that other apps have created similar vulnerabilities for users’ data.

Facebook tightened its app permissions in 2014, but the change did not affect apps downloaded or used before that time. Nor does it appear these permissions were sufficient to address the Cambridge Analytica-related concerns, which appear to have occurred primarily in 2015 and 2016.

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