# Facebook and Nvidia Request SCOTUS to Limit Investor Lawsuits
Two prominent technology firms, Facebook (now Meta) and Nvidia, are appealing to the United States Supreme Court (SCOTUS) in disputes that could alter the legal terrain for investor lawsuits. Both entities are urging SCOTUS to constrict the legal avenues through which investors can pursue claims against them for losses resulting from alleged corporate wrongdoing. The decisions made in these cases could significantly influence how technology firms disclose risks and manage investor relations following controversies.
### Overview of the Cases
The two matters currently before the Supreme Court involve significant scandals that have shaken the tech sector in recent years:
1. **Facebook-Cambridge Analytica Scandal**: This case centers on Facebook’s management of the notorious Cambridge Analytica data breach, where the personal information of millions of users was inappropriately accessed and utilized for political marketing. In 2019, Facebook reached a settlement with the Federal Trade Commission (FTC) and the Securities and Exchange Commission (SEC), paying over $5 billion in civil fines for misleading users and investors regarding the breach. Nonetheless, investors have continued to pursue legal action, contending that Facebook deceived them by failing to disclose the breach promptly and transparently.
2. **Nvidia’s Cryptocurrency Surge**: Nvidia is confronting allegations that it misrepresented the actual source of its revenue growth during the 2017–2018 cryptocurrency surge. Investors assert that Nvidia minimized the degree to which its sales were propelled by the volatile cryptocurrency market, as opposed to its primary gaming division. When the crypto market collapsed, Nvidia found it necessary to reduce its earnings forecasts, resulting in substantial investor losses. Nvidia settled with the SEC in 2022, incurring a $5.5 million penalty for insufficient disclosures, yet investors are still pursuing reparation through the litigation process.
### Legal Contentions
Both Facebook and Nvidia have filed appeals to SCOTUS, positing that the legal criteria for investor lawsuits must be tightened to fend off frivolous litigation. They argue that the existing legal framework enables investors to engage in “fishing expeditions” and initiate lawsuits based on hindsight instead of concrete evidence of fraud.
#### Facebook’s Stance: Hypothetical Risk Declaration
In the Facebook matter, the company defends its choice to characterize the risk of a data breach as a hypothetical occurrence in its SEC filings, even though the Cambridge Analytica breach was already in progress. Facebook’s disclosure articulated that a failure to avert or mitigate a data breach “could harm our business and reputation.” Investors contend that this phrasing was misleading because it suggested that no breach had occurred, while the Cambridge Analytica debacle was already happening.
Facebook argues that no reasonable investor would interpret a forward-looking risk disclosure as suggesting that no breach had ever taken place. The company claims that mandating it to report every past material incident would establish an “omissions liability” regime, compelling companies to over-disclose information and potentially inundating investors with extraneous data.
#### Nvidia’s Position: Expert Testimony and Crypto Revenue
In the Nvidia case, the company disputes the use of expert testimony to estimate how much of its revenue was linked to cryptocurrency demand. Investors relied on such an expert analysis to assert that Nvidia underreported its crypto-related revenue by over $1 billion. Nvidia contends that this expert testimony is speculative and that the lawsuit represents an instance of “fraud by hindsight,” where investors are initiating claims based on market conditions that were unforeseeable at the time.
Nvidia is invoking the Private Securities Litigation Reform Act (PSLRA), which imposes stricter pleading requirements on plaintiffs in securities fraud cases. The company argues that the 9th Circuit Court of Appeals erred in permitting the lawsuit to advance based on expert testimony, which Nvidia claims was “manufactured” to align with the investors’ allegations.
### Possible Consequences
The Supreme Court’s rulings in these cases could have extensive implications for both tech companies and investors. If SCOTUS favors Facebook and Nvidia, it may become considerably more difficult for investors to litigate against companies for securities fraud, especially in situations involving intricate disclosures and emerging markets like cryptocurrency.
#### Effects on Investor Lawsuits
Both Facebook and Nvidia caution that upholding the 9th Circuit’s decisions could unleash a deluge of frivolous lawsuits. Nvidia, in particular, has asserted that permitting expert testimony to serve as the foundation for securities fraud claims would create a “dangerous” precedent, facilitating investors to launch lawsuits based on speculative data.
Conversely, investors contend that private securities litigation is a crucial mechanism for ensuring corporate accountability. They argue that if SCOTUS favors the tech giants, it would effectively grant companies a “license to intentionally mislead investors” by minimizing or omitting material risks in their disclosures.
#### Pro-Business Court?
Legal analysts have noted that the Supreme Court’s conservative majority has a history of delivering business-friendly decisions, especially in matters related to federal regulation. Andrew Feller, a former SEC
