Meta Platforms (Facebook & Instagram) Caught Lying About The Number of Real Users To Advertisers

Courts Rule They Can Be Sued for Misrepresentation (a.k.a. Fraud)

Authors:
•  SCARS Editorial Team – Society of Citizens Against Relationship Scams Inc.
•  By Jonathan Stempel, Reuters

About This Article

The 9th U.S. Circuit Court of Appeals ruled in a 2-1 decision that Meta Platforms, owner of Facebook and Instagram, must face a class-action lawsuit filed by advertisers. The lawsuit alleges Meta overcharged advertisers by fraudulently inflating the potential reach of their ads, using metrics based on social media accounts rather than actual people, leading to potential viewer overestimations of up to 400%.

While the court allowed advertisers to sue for damages as a group, it decertified a separate class seeking injunctive relief. Advertisers estimate Meta may owe over $7 billion in damages. Meta, with ads generating most of its revenue, has yet to comment.

The lawsuit, covering millions of individuals and businesses since August 2014, claims Meta’s senior executives knew about inflated metrics but concealed the information. Circuit Judge Sidney Thomas wrote for the majority, emphasizing Meta’s alleged misrepresentation.

Meta Platforms (Facebook & Instagram) will Face Advertisers’ Class Action Lawsuit, US Appeals Court rules!

The 9th U.S. Circuit Court of Appeals in San Francisco delivered a divided ruling that Meta Platforms, the parent company of Facebook and Instagram, must face a class-action lawsuit filed by advertisers over knowingly misreporting the actual number of real users on their platforms.

The lawsuit alleges that Meta overcharged advertisers by fraudulently inflating the potential reach of their ads. Advertisers claim that Meta’s metric for measuring potential reach counted social media accounts rather than actual individuals, leading to an overestimation of potential viewers by up to 400%. The court’s decision allows advertisers to sue for damages as a group but decertifies a separate class seeking injunctive relief. The dissenting judge would have decertified both classes.

Advertisers estimate that Meta could owe over $7 billion in damages. The lawsuit also accuses Meta of knowing about duplicate and fake accounts inflating metrics but attempting to cover it up.

Meta has yet to comment on the ruling. The case will proceed to trial, offering potentially significant recoveries for advertisers.

According to Reuters:

A divided U.S. appeals court said Meta Platforms (META.O), opens new tab must face a class action by advertisers that accused the Facebook and Instagram owner of overcharging them by fraudulently inflating the number of people their ads might reach.
In a 2-1 decision on Thursday, the 9th U.S. Circuit Court of Appeals in San Francisco said advertisers could sue for damages as a group over Meta’s claims about the “potential reach” of their ads.

Advertisers said the metric used measured the number social media accounts, not the lower number of actual people, and inflated the number of potential viewers by as much as 400%.
The court also decertified a separate class seeking injunctive relief, meaning the advertisers cannot sue as a group, because it wasn’t clear that the main plaintiff had legal standing to sue.
A dissenting judge would have decertified both classes. The advertisers have estimated Meta could owe more than $7 billion of damages, court papers show.

Meta and its lawyers did not immediately respond to requests for comment.

• The Menlo Park, California-based company has said ads generate “substantially all, opens new tab” of its revenue, which totaled $134.9 billion in 2023. Net income was $39.1 billion.
• Class actions afford potentially greater recoveries at lower cost than if plaintiffs are forced to sue individually.

Circuit Judge Sidney Thomas wrote for the majority that because Meta provided the same alleged misrepresentation about potential reach, advertisers could try to prove that their alleged damages stemmed from a “common course of conduct.”

The class covers potentially millions of individuals and businesses that have paid for ads on Facebook and Instagram since Aug. 15, 2014.

Their lawsuit included a claim that senior executives knew that duplicate and fake accounts, including from bots, inflated the “potential reach” metric, but took steps to cover it up.

Circuit Judge Danielle Forrest, in a partial dissent, said she would decertify the damages class because of individualized questions about what advertisers understood about what Meta was telling them before they bought ads.

Geoffrey Graber, a lawyer for the advertisers, said he looked forward to taking the damages case to a jury.

The case is DZ Reserve et al v Meta Platforms Inc, 9th U.S. Circuit Court of Appeals, No. 22-15916.

Source article: Meta Platforms must face advertisers’ class action, US appeals court says | Reuters

SCARS Analysis

The U.S. appeals court decision that Meta Platforms (Facebook and Instagram) must face a class-action lawsuit over fraudulent ad reach metrics carries significant implications for the company.

The ruling not only exposes Meta to potential damages but also underscores the need for more robust measures to combat fake and duplicate profiles on its platforms.

The court’s acknowledgment of inflated potential viewer numbers by as much as 400% highlights a critical flaw in Meta’s advertising model, eroding advertisers’ trust and damaging Meta’s reputation. If the 400% inflation is correct, that could be interpreted to mean that the number of fakes to real profiles is 4 to 1, much higher than ever estimated – the previous estimates by SCARS and others were 2 to 1.

With advertisers estimating potential damages exceeding $7 billion, Meta faces substantial financial repercussions. If $7 billion is ever awarded to the plaintiffs, that could significantly damage both Meta’s financial position, and potentially also result in a shareholder revolt that could topel Mark Zuckerberg’s control of the company.

Furthermore, the lawsuit’s claim that senior executives knew about inflated metrics but attempted to conceal them raises concerns about Meta’s transparency and accountability. This could also result in regulatory action by the FTC or Department of Justice against these individuals for fraud.

To mitigate these risks and restore trust, Meta must massively intensify efforts to eliminate fake and duplicate profiles, bolster platform policing, and enhance transparency in its advertising practices. Failure to address these issues will likely further erode advertiser confidence and negatively impact Meta’s revenue and market standing.

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More Related Meta Lawsuit Information:

• 22-15916 – DZ Reserve, et al v. Meta Platforms, Inc. – Content Details – (govinfo.gov)
• Meta Platforms must face advertisers’ class action, US appeals court says | Reuters
• Covers potentially millions of individuals and businesses (reuters.com)
• 2023 Meta Platforms 10-K Filing – XBRL Viewer (sec.gov)

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