In a wide ranging derivative action, a Facebook shareholder has filed a 193 page complaint in the Delaware Court of Chancery alleging three Facebook directors sold a total of $1.5 billion of stock while in possession of inside information. Specifically, the complaint alleges that at the time of the stock sales Facebook faced a looming crisis over privacy concerns and that the value of Facebook equity shares did not reflect such “inside information.” According to the complaint, when the directors sold their respective shares of Facebook stock, Facebook had been aware of the activities of Cambridge Analytica and the other misconduct referred to in the complaint.
Other allegations in the complaint include:
- Defendants violated Section 14(a) of the Exchange Act and SEC Rule 14a-9 by causing Facebook to issue proxy statements that failed to disclose the Cambridge Analytica incident, or the seriously deficient internal controls and privacy policies that Facebook maintained which caused Facebook to violate user privacy laws and damage Facebook’s reputation.
- Facebook’s board, including all of the individual defendants, caused Facebook to issue and file with the SEC materially misleading proxy statements soliciting their vote against various matters proposed by shareholders.
- Defendants also violated Section 14(a) of the Exchange Act and SEC Rule 14a-9 by causing Facebook to issue proxy statements soliciting approval of compensation packages, failing to disclose the Cambridge Analytica incident which caused serious harm and damages to Facebook or the seriously deficient privacy policies that allowed it to occur.
- With full knowledge of the exfiltration and unauthorized use of user data and the undisclosed deviation of its policies described in the complaint, the Facebook board authorized Facebook to repurchase $6 billion of its own shares of common stock.
It is important to note that no court has ruled any of the allegations in the complaint are proper or true or state a cause of action or that the defendants took any improper actions.
Leave a Reply