Zuckerberg Sued Over Alleged Insider Trading, Privacy Scandals As Threats Mount To His Power
Mark Zuckerberg and other top Facebook executives are being sued by shareholders over alleged insider trading and privacy scandals that did long-term damage to the company’s stock, reputation and prospects, the lawsuit claims.
The suit was filed May 1 in Delaware Chancery Court against Zuckerberg, Sheryl Sandberg, Peter Thiel, and three other Facebook board members, Bloomberg reported. It came a week after Facebook announced it expected to pay a fine of up to $5 billion for violating a Federal Trade Commission consent decree requiring better privacy safeguards.
Zuckerberg, Sandberg, and another board member violated securities laws and their duties to shareholders by cashing out “massive amounts” of their personal Facebook stock while urging investors to vote against corporate governance measures aimed at enhancing privacy oversight,
according to the complaint.
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Facebook’s reputation with advertisers is its main source of value, according to the suit. The scandals and resulting lawsuits are a major threat to the company and its shareholders, the suit says.
The Federal Trade Commission’s investigation into the Cambridge Analytica data breach is drawing to its conclusion, and the regulator wants to impose new privacy safeguards on Facebook, Politico and The New York Times reported.
Facebook lost $50 billion in market value in the first two days after the Cambridge Analytica story broke and later had the worst single-day loss in stock market history.
The FTC is considering new privacy safeguards including:
- An FTC-approved privacy official to monitor whether Facebook is complying with the FTC settlement and acting in the best interests of users.
- An “independent” privacy oversight committee to keep Facebook in check.
- Appointing Zuckerberg or another Facebook exec as a “compliance” officer, making that executive personally accountable for future data breaches.
“These measures would be some of the biggest erosion of Zuckerberg’s authority in Facebook’s history,” Jake Kanter reported for Business Insider. “He would have independent experts looking over his shoulder, checking his homework, holding him accountable for mistakes, and working to ensure users are being protected. Some of those experts would report to the federal government.”
A Facebook spokesperson said the recent lawsuit is without merit. All Zuckerberg’s trading in Facebook stock was done under Securities and Exchange Commission Rule 10b5-1, which allows company insiders to avoid insider trading allegations by establishing formal plans to sell a predetermined number of shares at a preset time, Bloomberg reported.