Meta is facing a new legal pathway in the United States after adopting a different defense strategy in lawsuits concerning fraudulent advertisements on Facebook and Instagram. The company is pushing to argue that these cases fall under the Federal Securities Act rather than state consumer protection laws—a move that could significantly limit its legal liability if upheld by courts.
Lawsuits Accuse Meta of Facilitating Fraud
A federal court in San Francisco is currently hearing lawsuits filed by investors who claim they were defrauded after clicking on advertisements across Meta’s platforms. These ads utilized the names and likenesses of celebrities and prominent investment figures to promote fake financial opportunities. According to the lawsuits, victims were subsequently directed to private WhatsApp groups where fraudsters persuaded them to purchase low-value penny stocks as part of a pump-and-dump scheme, resulting in substantial financial losses.
The plaintiffs argue that Meta played a pivotal role in enabling these operations by permitting the publication of misleading ads and profiting from the ad revenue, while the company denies any legal wrongdoing.
Shifting the Defense to Federal Securities Law (SLUSA)
After encountering difficulties relying on the traditional immunity provided by Section 230 of the Communications Decency Act—which shields platforms from liability for user-generated content—Meta transitioned its strategy. The tech giant now argues that these cases are governed by the Securities Litigation Uniform Standards Act (SLUSA), asserting that the alleged financial harm is directly tied to stock purchase decisions.
Federal judges note that accepting this interpretation could block class-action lawsuits based on various state consumer protection laws. Consequently, plaintiffs would be forced to refile under federal securities laws, which impose far stricter standards of proof to establish liability.
Concerns Over a Legal Loophole
Plaintiffs’ attorneys warn that accepting Meta’s defense could create a dangerous legal loophole, leaving social media giants far less accountable in investment fraud cases compared to other forms of online scams. Conversely, Meta maintains that the scammers themselves, rather than the platform, are responsible for the fraudulent content.
The court is expected to issue its ruling in the coming period—a decision that could establish a major legal precedent defining the boundaries of social media platforms’ liability for fraudulent advertisements tied to investments and financial markets.
