Facebook Investor Probing $5 Billion Privacy Payout Gets a Boost

Facebook Inc. lost a fight to withhold records in an investor lawsuit probing whether the company overpaid in a record $5 billion settlement with a government regulator in 2019 to protect founder Mark Zuckerberg in the wake of the Cambridge Analytica privacy scandal.

A Delaware judge ruled Wednesday that Facebook must furnish some internal files to Rhode Island’s public employee pension fund, which is questioning how the company came to terms with the U.S. Federal Trade Commission in the agency’s sweeping investigation of the misuse of consumer data.

The pension fund is looking into whether Facebook directors agreed to pay an additional $2 billion as part of the FTC settlement over the fallout from Cambridge Analytica to shield Zuckerberg from facing personal liability in the case. Delaware law gives investors access to internal files if they raise legitimate questions about mismanagement or self-dealing by directors.

The ruling comes as Facebook, Amazon Inc. and other U.S.-based technology companies face an ongoing FTC probe about how they collect and handle user information, including data about children and teens.

Andy Stone, a Facebook spokesman, didn’t immediately respond to an email seeking comment on the ruling by Delaware Chancery Court Judge Joseph Slights III.

The FTC’s decision to enter into the accord with Facebook over the Cambridge Analytica flap came on a 3-2 commission vote, with Democrats on the panel saying it didn’t go far enough and failed to hold Zuckerberg and Facebook COO Sheryl Sandberg personal liable for allowing the date to be mined by third parties.

Cambridge Analytica staff harvested personal data of millions of Facebook users and helped Trump win the 2016 U.S. presidential election and the successful U.K effort to move England out of the European Union.

In reviewing the documents, Slights said Facebook could retain files detailing conversations with the companies’ lawyers. But other files containing board-level notes and emails that didn’t involve lawyers must be turned over to the fund.

While Facebook already has turned over thousands of documents about the Cambridge Analytica flap, those files “provide no insight into why Facebook would pay more than its (apparently) maximum exposure to settle a claim,” the judge said. The pension fund “is right to question whether internal communications among” Facebook executives and directors “might shed light on the board’s thinking in this regard.”

The case is Employees Retirement System of Rhode Island v. Facebook Inc., 2020-0085, Delaware Chancery Court Wilmington).

To contact the reporters on this story:
Jef Feeley in Wilmington, Delaware at jfeeley@bloomberg.net;
Michael Leonard in Arlington at mleonard68@bloomberg.net

To contact the editors responsible for this story:
David Glovin at dglovin@bloomberg.net

Anthony Lin, Peter Blumberg

© 2021 Bloomberg L.P. All rights reserved. Used with permission.