A federal judge has dismissed a lawsuit against Meta Platforms that accused the technology company of facilitating a fraudulent investment scheme that cost victims more than $300 million. The ruling highlights complex jurisdictional issues surrounding securities fraud cases involving social media platforms.
Chief U.S. District Judge Richard Seeborg ruled that the Securities Litigation Uniform Standards Act of 1998 prevents the plaintiffs from pursuing their claims under state law. The federal statute requires dismissal of certain securities class actions that allege misrepresentation or omission of material facts related to the purchase or sale of covered securities.
The case centered on allegations that Meta helped scammers promote fraudulent investment opportunities through advertisements on Facebook and Instagram. According to court documents, victims clicked on these advertisements and were subsequently added to WhatsApp groups where individuals posing as financial advisers encouraged them to purchase shares of China Liberal Education Holdings Ltd., a Chinese penny stock.
The scammers allegedly promised returns of up to 380 percent and offered to reimburse investors for any losses. The advertisements featured references to well-known financial figures and celebrities, including Bank of America Merrill Lynch executive Savita Subramanian and television personality Kevin O’Leary from Shark Tank.
Unbeknownst to investors, the scammers secretly controlled hundreds of millions of shares of the company. When this information became public, the stock price collapsed, resulting in massive losses for investors who had been drawn into the scheme.
During the court hearing, attorney Andrew Robertson, representing the plaintiffs, argued that Meta’s involvement was limited to creating the initial advertisements that brought victims into contact with the scammers. He maintained that the company did not participate in the specific misrepresentations about securities that occurred within the WhatsApp groups.
Robertson emphasized that Meta played a specific but important role in the early phase of the scheme, when victims were initially lured to interact with the fraudsters. He sought to distinguish between Meta’s creation of the fraudulent advertisements and the subsequent investment advice provided by the scammers.
However, Judge Seeborg rejected this argument, stating that the plaintiffs were attempting to have it both ways. In his written decision, he noted that while Meta’s fraudulent statements may have initially caused victims to form relationships with the scammers, the ultimate and legally relevant effect was to induce them to purchase near-worthless securities.
Attorney Sonal N. Mehta, representing Meta, pointed to portions of the plaintiffs’ complaint that described the fraudulent advertisements as an essential element and critical first step in the investment scheme. Mehta argued that if Meta materially contributed to advertisements that were material to investors’ decisions to purchase securities, then federal securities law preempts the state law claims.
The judge’s ruling came shortly after determining in March that Meta was not immune under Section 230 of the Communications Decency Act. That earlier decision found that plaintiffs had adequately alleged Meta materially contributed to the fraudulent advertisements through tools it offered, including generative artificial intelligence capabilities.
The dismissal was issued without prejudice, meaning the plaintiffs could potentially refile their case under federal securities laws or in another form not precluded by the Securities Litigation Uniform Standards Act. This leaves open the possibility for victims to pursue alternative legal strategies to seek compensation for their losses.
The case underscores the challenges faced by fraud victims seeking recourse against technology platforms that may have inadvertently facilitated criminal schemes through their advertising systems.
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