Case 4:18-cv-01792-HSG Document 142 Filed 12/17/19 Page 1 of 319
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`JOSEPH W. COTCHETT (SBN 36324)
`jcotchett@cpmlegal.com
`MARK C. MOLUMPHY (SBN 168009)
`mmolumphy@cpmlegal.com
`BRIAN DANITZ (SBN 247403)
`bdanitz@cpmlegal.com
`GINA STASSI (SBN 261263)
`gstassi@cpmlegal.com
`TYSON REDENBARGER (SBN 294424)
`tredenbarger@cpmlegal.com
`ANYA THEPOT (SBN 318430)
`athepot@cpmlegal.com
`COTCHETT, PITRE & MCCARTHY, LLP
`San Francisco Airport Office Center
`840 Malcolm Road, Suite 200
`Burlingame, CA 94010
`Telephone: (650) 697-6000
`Facsimile: (650) 697-0577
`
`Lead Counsel for Plaintiffs
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`UNITED STATES DISTRICT COURT
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`FOR THE NORTHERN DISTRICT OF CALIFORNIA
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`
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`IN RE FACEBOOK, INC.
`SHAREHOLDER DERIVATIVE
`PRIVACY LITIGATION
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`This Document Relates to:
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` ALL ACTIONS
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`Lead Case No. 4:18-cv-01792-HSG
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`PLAINTIFFS’ FIRST AMENDED
`CONSOLIDATED SHAREHOLDER
`DERIVATIVE COMPLAINT
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`Judge: Hon. Haywood S. Gilliam, Jr.
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`Date Action Filed: March 22, 2018
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`Case 4:18-cv-01792-HSG Document 142 Filed 12/17/19 Page 2 of 319
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`TABLE OF CONTENTS
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`Page
`SUMMARY OF THE ACTION -------------------------------------------------------------------1
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`I.
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`II. JURISDICTION AND VENUE -------------------------------------------------------------------5
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`III. PARTIES ----------------------------------------------------------------------------------------------7
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`A. Plaintiffs ---------------------------------------------------------------------------------------- 7
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`B. Nominal Defendant --------------------------------------------------------------------------- 7
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`C.
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`Individual Defendants ------------------------------------------------------------------------ 7
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`IV. FACTUAL BACKGROUND ---------------------------------------------------------------------10
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` Background of the Company and Its Business ------------------------------------------- 10
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`1.
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`2.
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`Facebook’s Advertising Business is the Source of Substantially All of Its
`Revenue ---------------------------------------------------------------------------- 11
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`Facebook’s Success Depends Upon User Trust, Which Defendants
`Cultivated By Promising That Users Control Their Data ------------------- 12
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` Facebook’s Practices Respecting User Data Were the Subject of an FTC
`Investigation and a 20-Year Consent Order Entered in 2012 -------------------------- 14
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` Defendants Announced Changes to Facebook’s Policies That Were Supposedly
`Implemented in 2014 to Protect User Privacy ------------------------------------------- 17
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` The Cambridge Analytica Incident Revealed Rampant Privacy Violations at
`Facebook and That Defendants Failed to Comply with the FTC Consent Order --- 18
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`1.
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`2.
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`3.
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`4.
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`The Sale of Facebook Data to Cambridge Analytica ------------------------ 18
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`Facebook’s Investigation into Cambridge Analytica’s Use of Facebook
`Data Began in 2015 --------------------------------------------------------------- 20
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`Red Flags Were Subsequently Raised About Cambridge Analytica’s Other
`Potential Misuse of Facebook User Data -------------------------------------- 21
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`The Guardian and The New York Times Run Exposés on the Sale of
`Facebook User Data to Cambridge Analytica -------------------------------- 23
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` Defendants Admit Cambridge Analytica Obtained User Data in Violation of
`Facebook’s Policies in a “Facebook Newsroom” Post on March 16, 2018 ---------- 23
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`Facebook’s 1Q18 Financial Results Suggested That Users Were Unconcerned
`About the Privacy Abuses Revealed by the Cambridge Analytica Scandal --------- 30
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` Following Reports of Facebook’s Data-Sharing Agreements, Defendants Admit
`Certain Companies Still Had Access to User Data in June 2018 ---------------------- 34
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` Facebook’s 2Q18 Financial Results Reveal the Effects of the Data-Sharing Scandal
`on Facebook’s User Engagement, Advertising Revenues, and Earnings, Leading to
`a $100 Billion Loss in Facebook’s Value ------------------------------------------------- 36
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` Additional Reports That Facebook User Data Has Been Compromised and Further
`Revelations of Facebook’s Data Sharing Practices Continue in 2018 ---------------- 39
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`Case 4:18-cv-01792-HSG Document 142 Filed 12/17/19 Page 3 of 319
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` Defendants Announce Changes to Facebook’s Platform in Early 2019 in a Belated
`Attempt to Mitigate Their Privacy Abuses and Reputational Harm ------------------ 42
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` Facebook Announces Its 1Q19 Financial Results – and Expected Losses of $3-$5
`Billion as A Result of the Anticipated Settlement With the FTC --------------------- 45
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`Facebook’s Internal Investigation Reveals “Tens of Thousands of Apps” Continued
`to Access User Data After the Changes to Its Policies in 2014 ------------------------ 46
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`V. FEDERAL REGULATORS CONFIRM DEFENDANTS’ VIOLATIONS
`OF LAW --------------------------------------------------------------------------------------------47
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` The FTC and DOJ Charged Facebook With Violations of the 2012 Consent Order
`and the FTC Act, Resulting in an “Unprecedented” $5 Billion Penalty -------------------- 47
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`1.
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`2.
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`3.
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`4.
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`Facebook Violated the Consent Order Through “Deceptive Privacy
`Settings and Statements” – i.e., the “Very Same Conduct … That Led to
`the 2012 Order” ------------------------------------------------------------------- 51
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`Facebook Violated the 2012 Consent Order by “Fail[ing] to Maintain a
`Reasonable Privacy Program” -------------------------------------------------- 53
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`Facebook Violated the Consent Order by “Fail[ing[ to Implement and
`Maintain Appropriate Safeguards and Controls Over Third-Party …
`Access to User Data” ------------------------------------------------------------- 54
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`Facebook Violated the Consent Order By Misrepresenting the Extent to
`Which Users Could Control Their Data --------------------------------------- 57
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`a. The FTC Found “Facebook Falsely Announced That Third-Party
`Developers Would No Longer Be Able to Access [User] Data” ----------- 57
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`b. The FTC Found Facebook “Did Not Tell Users That Sharing with
`Their Friends Allowed Third-Party Developers to Access Their [Friends’
`Data]” ------------------------------------------------------------------------------- 58
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` The FTC and DOJ Required Facebook to Implement Internal Controls and Reforms
`Designed to Increase Board Oversight and Remove Zuckerberg’s “Unfettered
`Control” Over “Decisions Affecting User Privacy” ------------------------------------- 61
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` The SEC Charged Facebook with Violating Federal Securities Laws and Imposed a
`$100 Million Penalty ------------------------------------------------------------------------- 69
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`1.
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`2.
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`The SEC Found That Defendants’ Statements in Facebook’s Public
`Filings Were Materially False and Misleading When Made---------------- 71
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`The SEC Found That Defendants’ Statements to the Press Reinforced
`Facebook’s Misleading Public Filings ----------------------------------------- 73
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` The FTC Reportedly May Seek an Injunction Against Facebook, and Other
`Regulators Are Also Investigating the Company, Due to Antitrust Concerns ------ 75
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`VI. DEFENDANTS’ FALSE AND MISLEADING STATEMENTS AND
`OMISSIONS ---------------------------------------------------------------------------------------76
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` Defendants Made Materially False and Misleading Statements About the
`Company’s Data Security and Privacy Policies------------------------------------------ 77
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` Defendants Made Materially False and Misleading Statements Concerning Risks to
`Facebook’s Business ------------------------------------------------------------------------- 78
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`Case 4:18-cv-01792-HSG Document 142 Filed 12/17/19 Page 4 of 319
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` Defendants Made Materially False and Misleading Statements About Facebook’s
`Investigation and Response After Learning About the Transfer of User Data to
`Cambridge Analytica ------------------------------------------------------------------------ 81
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` Defendants Made Materially False and Misleading Statements Concerning
`Notifying Facebook Users Whose Accounts Were Compromised Or At Risk Of
`Being Compromised ------------------------------------------------------------------------- 82
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` Defendants Made Materially False and Misleading Statements Concerning
`Facebook’s Response to Other Reported Instances Of Data Misuse ----------------- 82
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` Defendants Made Materially False and Misleading Statements Concerning
`Facebook Users’ Knowledge or Consent to Providing Information to Kogan ------ 84
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` Defendants Made Materially False and Misleading Statements Regarding their
`Compliance with the FTC Consent Decree ----------------------------------------------- 87
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` Defendants Made Materially False and Misleading Statements Concerning
`Facebook’s Critical DAU and MAU Metrics -------------------------------------------- 92
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` Defendants Made Materially False and Misleading Statements About the Impact of
`the Scandal on Facebook’s Business and 1Q18 Financial Results -------------------- 94
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` Defendants Made Materially False and Misleading Statements That Facebook Does
`Not “Sell” Users’ Data ---------------------------------------------------------------------- 96
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`VII. DEFENDANTS VIOLATED SECTION 14(a) OF THE EXCHANGE ACT AND SEC
`RULE 14A-9 BY ISSUING MATERIALLY MISLEADING PROXY
`STATEMENTS ----------------------------------------------------------------------------------100
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`A. The Board Issued the Materially Misleading Proxy Statement in 2017 Soliciting the
`Directors’ Re-Election to Facebook’s Board ------------------------------------------- 101
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`B. The Board Issued the Materially Misleading Proxy Statement in 2018
`Recommending a Vote Against Shareholder Proposals on the Basis of Directors’
`Statements About Facebook’s Privacy Practices and Board Oversight of Risks - 102
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`1.
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`2.
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`The Board’s Statements about Stockholder Proposal #4 Regarding a Risk
`Oversight Committee Are Materially Misleading -------------------------- 104
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`The Board’s Statements about Stockholder Proposal #6 Regarding a
`Content Governance Report Are Materially Misleading ------------------ 105
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`VIII. DEFENDANTS VIOLATED SECTION 10(b) OF THE EXCHANGE ACT AND SEC
`RULE 10B-5 BY AUTHORIZING AND EFFECTUATING MANIPULATIVE
`SHARE REPURCHASES AND OTHER TRANSACTIONS IN FACEBOOK
`SECURITIES ------------------------------------------------------------------------------------108
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` Defendants Made Materially False and Misleading Statements and Omissions That
`Caused Facebook’s Stock Price to Trade At Artificially Inflated Prices During the
`Relevant Period ----------------------------------------------------------------------------- 108
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` Defendants Authorized, Effectuated and Approved Manipulative Share
`Repurchases Totaling More Than $24 Billion ----------------------------------------- 110
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`1.
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`The Board Approved a $6 Billion Share Repurchase Program That
`Commenced in 2017 ------------------------------------------------------------ 110
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`2.
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`3.
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`The Board Increased the Authorization by an Additional $9 Billion in
`April 2018 ------------------------------------------------------------------------ 111
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`The Board Approved Another $9 Billion Increase to the Share Repurchase
`Authorization in April 2018 --------------------------------------------------- 111
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` While Causing Facebook to Repurchase Shares at Artificially Inflated Prices,
`Certain Defendants Sold Their Own Shares of Facebook Stock -------------------- 115
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` Facebook Suffered Economic Loss and Other Damages As a Result of Defendants’
`Manipulation of the Market for Facebook Stock Through False and Misleading
`Statements and Omissions, Repurchases, and Insider Sales ------------------------- 119
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`1. Market Efficiency ---------------------------------------------------------------- 120
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`2. Loss Causation and Damages -------------------------------------------------- 122
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`IX. ADDITIONAL ALLEGATIONS OF DEFENDANTS’ SCIENTER -------------------128
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` Defendants Oversaw an Illegal Business Strategy Based on “Reciprocity” – i.e.,
`Granting Access to Facebook User Data in Exchange for Something of Value -- 129
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`1.
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`2.
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`The FTC Found That Defendants Immediately Violated the FTC Consent
`Order After It Was Entered in 2012 ------------------------------------------ 130
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`Facebook’s Internal Documents Confirm Defendants’ Decision to
`Exchange Data for Reciprocal Value ---------------------------------------- 132
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` Defendants Continued to Allow “Whitelisted” Third-Party Apps to Access User
`Data While Representing That Facebook’s More Restrictive Policies Prohibited
`Such Unauthorized Access ---------------------------------------------------------------- 136
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`1.
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`2.
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`The FTC Found “Financial Considerations Influenced Facebook’s
`Decisions Regarding Whether to Restrict … Access to User Data” ----- 138
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`The FTC Found That “Facebook Was Aware That Giving Millions of
`Third-Party Developers Access to [User] Data Posed Privacy Risks” -- 139
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` Defendants Received Multiple “Red Flag” Warnings of Potential Violations of
`Facebook’s Policies (and the FTC Consent Order) Throughout the
`Relevant Period ----------------------------------------------------------------------------- 140
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`1.
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`2.
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`3.
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`4.
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`Facebook’s Adjudicated Violations of Foreign Privacy Laws ----------- 142
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`Warnings From Facebook Employees --------------------------------------- 144
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`Facebook’s Chief Information Security Officer Resigned After His 2017
`Warnings to the Board Were Ignored ---------------------------------------- 145
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`Defendant Andreessen Admitted That He Consciously Disregarded
`Warnings From Whistleblower Wylie in 2016 and 2018 ----------------- 147
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` Defendants Agreed to Pay a $5 Billion Penalty to Resolve Claims That They
`Personally Violated the FTC Consent Order and Section 5 of the FTC Act ------- 148
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` Defendants Personally Benefited From Their Insider Sales of Facebook Stock and
`Other Transactions in Facebook Securities During the Relevant Period While
`Facebook’s Stock Price Was Artificially Inflated By Their Misrepresentations -- 150
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`X. .....INDIVIDUAL DEFENDANTS’ COMPENSATION AND STOCK
`OWNERSHIP ------------------------------------------------------------------------------------152
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`Case 4:18-cv-01792-HSG Document 142 Filed 12/17/19 Page 6 of 319
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`XI. DAMAGES TO FACEBOOK ------------------------------------------------------------------155
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`XII. DERIVATIVE AND DEMAND ALLEGATIONS -----------------------------------------156
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` Demand Was Futile Because Defendant Zuckerberg Controls Facebook and Its
`Board ----------------------------------------------------------------------------------------- 156
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`1.
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`2.
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`3.
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`Defendants Have Admitted That Facebook is a “Controlled Company”
`and That Zuckerberg Controls Voting Decisions, Including the Election of
`Directors -------------------------------------------------------------------------- 159
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`SEC Commissioner Commentary Confirms That Facebook’s Dual Class
`Stock Structure and Zuckerberg’s Voting Control Effectively Negates the
`Board’s Ability to Exercise Effective Oversight --------------------------- 164
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`The Abrupt Resignation of Facebook’s Lead Independent Director, and
`Her Actions and Statements on Behalf of the Board, Further Demonstrates
`Zuckerberg’s Domination and Control -------------------------------------- 167
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` Demand Was Also Futile Because Facebook’s Board Lacks the Requisite
`“Disinterestedness” and Independence to Consider a Demand ---------------------- 168
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`1.
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`2.
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`3.
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`4.
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`5.
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`6.
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`7.
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`8.
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`The Entire Board is Interested With Respect to the 2012 Consent Order
`Violations and 2019 Settlement ----------------------------------------------- 168
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`Defendant Zuckerberg is Interested ------------------------------------------ 175
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`Defendant Sandberg is Interested, and Also Lacks Independence ------- 178
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`Defendant Thiel is Interested, and Also Lacks Independence ------------ 181
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`Defendant Andreessen is Interested, and Also Lacks Independence ---- 184
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`Defendant Chenault is Interested, and Also Lacks Independence ------- 187
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`Defendant Zients is Interested, and Also Lacks Independence ----------- 187
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`Defendant Alford is Interested, and Also Lacks Independence ---------- 188
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` The Share Repurchases, and Insider Sales and Awards of Stock During the Relevant
`Period, Are Interested Transactions Subject to Entire Fairness Review ----------- 190
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`XIII. DERIVATIVE CLAIMS -------------------------------------------------------------------------194
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`FIRST CAUSE OF ACTION
`Violations of Section 14(a) of the Exchange Act and SEC Rule 14a-9 ----------------- 194
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`SECOND CAUSE OF ACTION
`Violations of Section 10(b) of the Exchange Act and SEC Rule 10b-5 ----------------- 197
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`THIRD CAUSE OF ACTION
`Violations of Section 10(b) of the Exchange Act and SEC Rule 10b-5 ----------------- 201
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`FOURTH CAUSE OF ACTION
`Violations of Section 10(b) of the Exchange Act and SEC Rule 10b-5(b) ------------- 207
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`FIFTH CAUSE OF ACTION
`Violations of Section 20A of the Exchange Act -------------------------------------------- 211
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`SIXTH CAUSE OF ACTION
`Violations of Section 20(a) of the Exchange Act ------------------------------------------- 214
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`XIV. PRAYER FOR RELIEF -------------------------------------------------------------------------215
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`XV. JURY DEMAND ----------------------------------------------------------------------------------216
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`Case 4:18-cv-01792-HSG Document 142 Filed 12/17/19 Page 8 of 319
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`Plaintiffs Jeremiah F. Hallisey, Ronald Martin, Natalie Ocegueda, James Karon, and The
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`Gloria Stricklin Trust (collectively, “Plaintiffs”), by and through their undersigned counsel, bring
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`this shareholder derivative action on behalf of nominal Defendant Facebook, Inc. (“Facebook” or
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`the “Company”), asserting claims for violations of federal securities laws against certain current
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`and former officers and directors of Facebook (the “Defendants”), and allege as follows:
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`I.
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`SUMMARY OF THE ACTION
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`1.
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`Facebook operates a website (www.facebook.com) and smartphone application
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`(“app”) that allow Facebook users to connect with “friends.” The Company was founded in 2004
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`by defendant MarkZuckerberg (“Zuckerberg”), Facebook’s Chief Executive Officer (“CEO”),
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`Chairman of the Board, and largest stockholder. Zuckerberg is the public face of the Company.
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`He regularly communicates with its users and investors through his personal Facebook page and he
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`remains primarily responsible for development of the Company’s products.
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`2.
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`Nearly a decade ago, the U.S. Federal Trade Commission (“FTC”) began
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`investigating Facebook’s information-sharing practices, privacy settings, and representations
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`regarding the use of their personal information shared on the Company’s “social networking”
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`website. The FTC found that Facebook had deceived its users, and initially charged both the
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`Company and defendant Zuckerberg with violating Section 5 of the FTC Act, but ultimately
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`reached a settlement with Facebook and did not charge Zuckerberg individually.
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`3.
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`In 2012, Facebook consented to entry of an FTC administrative order (the “Consent
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`Order”) to resolve the FTC complaint that Facebook had engaged in deceptive trade practices in
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`violation of Section 5 of the FTC Act. The Consent Order required Facebook – including the
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`Company’s officers and members of its Board of Directors (the “Board”) – not to “misrepresent in
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`any manner, expressly or by implication, . . . the extent to which a consumer can control the
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`privacy of any covered information maintained by [Facebook] and the steps a consumer must take
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`to implement such controls; [and] the extent to which [Facebook] makes or has made covered
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`information accessible to third parties.” See Consent Order §§ I.B, C, In the Matter of Facebook,
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`Inc., Dkt. No. C-4365, 2012 FTC LEXIS 135 (July 27, 2012). The Consent Order also required
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`Facebook to maintain a privacy program reasonably designed to address the risks of giving app
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`developers access to user data. Id., §IV.
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`4.
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`Following a yearlong investigation by the FTC, on July 24, 2019, the U.S.
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`Department of Justice (“DOJ”), acting upon notification and authorization to the Attorney General
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`by the FTC, filed a Complaint for Civil Penalties, Injunction, and Other Relief against Facebook
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`(the “FTC 2019 Complaint”). The FTC 2019 Complaint alleged that Facebook violated the 2012
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`Consent Order in multiple ways: (1) by maintaining deceptive settings that misled users about how
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`to protect their information from being shared by Facebook with third-party developers of apps
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`used by their Facebook Friends (See FTC 2019 Complaint, Counts 1, 2); (2) by promising to stop
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`giving app developers access to the data of app users’ Friends starting in 2014, when in fact many
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`app developers continued to have such access past that date, with access for some lasting through
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`June 2018 (id., Count 3); (3) by inconsistently enforcing its privacy policies against app developers
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`who violated those policies, taking less severe action against app developers that generated
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`significant revenue for Facebook (id., Count 4); and (4) by implying to approximately 60 million
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`users that they could “turn on” facial-recognition technology associated with their posted photos
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`and videos when, in fact, that technology was “on” for those users by default (id., Count 5). In
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`addition, the FTC 2019 Complaint further alleged that Facebook violated Section 5 of the FTC Act
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`by using phone numbers provided to enable two-factor authentication—an enhanced account-
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`security tool—for advertising purposes (id., Count 6).
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`5.
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`To resolve the charges that the Company violated the Consent Order, Facebook was
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`required to pay a $5 billion civil penalty and consented to entry of a stipulated order that imposes
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`significant injunctive relief, primarily in the form of an amended administrative order” entered by
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`the FTC (the “Amended FTC Order”). In a press release announcing the settlement, the FTC
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`explained that the new order imposes “unprecedented new restrictions” on Facebook’s business
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`operations “from the corporate board-level down,” and “creates greater accountability at the
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`board of directors level” by “removing unfettered control by Facebook’s CEO Mark Zuckerberg
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`over decisions affecting user privacy.”
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`Case 4:18-cv-01792-HSG Document 142 Filed 12/17/19 Page 10 of 319
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`6.
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`Also on July 24, 2019, following an investigation of Facebook that was prompted
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`by the same facts as this lawsuit, the U.S. Securities and Exchange Commission (“SEC”) filed a
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`complaint (“SEC Complaint, see page 70” against Facebook for violating federal securities laws,
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`and SEC rules, by making misrepresentations in Facebook’s public filings and by failing to
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`implement and maintain adequate internal controls. The SEC found that, “[f]or more than two
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`years, Facebook made misleading statements in its required public filings about the misuse of its
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`users’ data.” In particular, “from 2016 until mid-March 2018, Facebook presented the risk of
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`misuse of Facebook users’ data as merely hypothetical” when, “[i]n fact, Facebook had already
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`become aware by December 2015 that a researcher had improperly sold information related to tens
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`1 2 3 4 5 6 7 8 9
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`of millions of Facebook users to data analytics firm Cambridge Analytica.”
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`7.
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`Since its initial public offering in 2012, Facebook has warned investors that one of
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`the material risks to its business was the fact that independent developers who create applications
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`for its platform might misuse personal data obtained from Facebook users. SEC Complaint, ¶2.
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`8.
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`In June 2014, an academic researcher and Cambridge Analytica entered into an
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`15
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`agreement, through affiliated companies, whereby Cambridge Analytica would pay for the
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`researcher to collect data on Facebook users. At Cambridge Analytica’s expense, the researcher,
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`Dr. Aleksandr Kogan (“Kogan”), developed a personality survey that obtained data from U.S.
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`Facebook users, including their names, birthdates, gender, location, and their affinities, or “page
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`likes.” From the summer of 2014 through the spring of 2015, Kogan transferred data relating to
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`approximately 30 million Facebook users in the United States to Cambridge Analytica. SEC
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`Complaint, ¶3.
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`9.
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`Facebook learned about the collaboration between Kogan and Cambridge Analytica
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`when it investigated a report published in the British press in December 2015. Within days of the
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`press report, both Kogan and Cambridge Analytica privately confirmed to Facebook that Kogan
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`had transferred personality profiles based on Facebook user data to Cambridge Analytica.
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`Facebook determined that the transfer violated its policy that prohibits developers, like Kogan,
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`Case 4:18-cv-01792-HSG Document 142 Filed 12/17/19 Page 11 of 319
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`from selling or transferring its users’ data, and told Kogan and Cambridge Analytica to delete the
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`data. SEC Complaint, ¶4.
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`10.
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`In June 2016, Kogan told Facebook that, in addition to transferring Cambridge
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`Analytica personality profiles for approximately 30 million of its users, he had also, for those same
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`users, sold Cambridge a substantial quantity of the underlying Facebook data from which he had
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`derived those profiles. SEC Complaint, ¶5.
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`11.
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`In Facebook’s quarterly and annual reports filed between January 28, 2016 and
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`March 16, 2018, Defendants did not disclose that a researcher had, in violation of the Company’s
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`policies, transferred data relating to approximately 30 million Facebook users to Cambridge
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`Analytica. Instead, Defendants misleadingly presented the potential for misuse of Facebook user
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`data as merely a hypothetical investment risk. Moreover, when asked by reporters in 2017 about
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`its investigation into the Cambridge Analytica matter, Facebook representatives falsely claimed the
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`Company found no evidence of wrongdoing, thereby reinforcing the misleading statements in
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`Facebook’s periodic filings. SEC Complaint, ¶6.
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`12.
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`Defendants did not disclose that a researcher had improperly transferred data for
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`16
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`millions of Facebook users to Cambridge Analytica until March 16, 2018, when Defendants—for
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`17
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`the first time—publicly acknowledged on Facebook’s website that the Company had learned of the
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`violation of its policy in 2015. SEC Complaint, ¶7.
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`13.
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`The price of Facebook shares declined substantially following this disclosure.
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`14.
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`On March 17, 2018, The New York Times and The Guardian’s Observer reported
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`that Cambridge Analytica, a data firm retained to assist the Trump election campaign, had
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`accessed and retained the information of 50 million users of Facebook’s social networking
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`website, without their authorization and informed consent. According to the Observer, a
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`whistleblower had revealed that Cambridge Analytica utilized Facebook’s app developer platform
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`to obtain the personal information of Facebook users in early 2014, to create a system to profile
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`26
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`U.S. voters and target certain of those individuals with personalized political advertisements.
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`Christopher Wylie (“Wylie”), a Canadian data analytics expert who worked with Cambridge
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`Case 4:18-cv-01792-HSG Document 142 Filed 12/17/19 Page 12 of 319
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`Analytica and researcher Kogan to create the dataset, told the Observer, “We exploited Facebook
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`to harvest millions of people’s profiles. And built models to exploit what we knew about them and
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`target their inner demons. That was the basis the entire company was built on.”
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`15.
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`Cambridge Analytica collected user data collected through an application or “app”
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`called “thisisyourdigitallife” designed by Kogan and his company, Global Science Research
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`(“GSR”). GSR, in collaboration with Cambridge Analytica, created the app, which was a
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`personality test, with the collected data supposedly to be used for academic purposes.
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`Approximately 270,000 people downloaded the app using their Facebook login credentials.
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`16.
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`Facebook subsequently confirmed that Cambridge Analytica had access to and may
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`have used the personal information of at least 50 million Facebook users – later increased to at
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`least 87 million users – most of whom are U.S. citizens.
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`17.
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`Facebook’s stock price tumbled, and the Company lost $50 billion in market value
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`in the first two days following public revelation of the Cambridge Analytica scandal. When the
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`14
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`market opened on Monday, March 19, 2018, the price of Facebook’s shares fell five percent, from
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`15
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`$185.09 to $172.56, and continued to decline throughout the week, closing at $159.39 per share on
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`March 23, 2018.
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`18.
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`Plaintiff Shareholders seek to recover on behalf of Facebook, the damages caused
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`18
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`by Defendants’ wrongdoing, and other equitable remedies for Facebook. Shareholder Plaintiffs,
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`19
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`on behalf of Facebook, are entitled to such relief; in light of Defendants’ wrongdoing that is
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`20
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`ongoing and is continuing to cause harm to Facebook, demand on Facebook’s Board was clearly
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`21
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`futile, and is excused, because Defendants are liable for their wrongful conduct and will not pursue
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`litigation or take any other action to recover for Facebook an appropriate remedy for the
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`wrongdoing and claims alleged herein.
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`II.
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`JURISDICTION AND VENUE
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`19.
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`This Court has subject matter jurisdiction over this action under Article III of the
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`United States Constitution and 28 U.S.C. § 1331 because of claims arising under Section 14(a) of
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`the Exchange Act, 15 U.S.C. § 78n(a), and SEC regulation 14a-9 promulgated thereunder, over
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`Case 4:18-cv-01792-HSG Document 142 Filed 12/17/19 Page 13 of 319
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`which the Court has exclusive jurisdiction under Section 27 of the Exchange Act, 15 U.S.C. §
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`78aa. This Court has jurisdiction over the state-law claims in accordance with 28 U.S.C. § 1367.
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`20.
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`In addition, the Court has jurisdiction over all the causes of action alleged in this
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`Complaint pursuant to 28 U.S.C. § 1332 because complete diversity between the Plaintiffs and
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`each of the named Defendants exists, and because the amount in controversy exceeds $75,000.
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`21.
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`This