Facebook, Nvidia, and Federal Agencies: Business-Friendly Decisions and Decreased Accountability for Private Companies

Throughout the Supreme Court’s history, cases regarding business regulations have been far from scarce, and differing social and political climates often dictate how friendly the Court is to these companies. This week, Facebook and Nvidia are facing the Supreme Court over cases involving federal securities fraud, but recent business-friendly rulings suggest that these companies might find favor with the justices.

Facebook is trying to dismiss a suit accusing the company of misleading investors. In 2018, a group of Facebook investors from Amalgamated Bank filed a class action lawsuit accusing Facebook of withholding information about a 2015 data breach from investors, which impacted over 30 million Facebook users. They claimed that this violated the 1934 Securities Exchange Act, which forces publicly traded companies to disclose their financial activity to prevent fraud such as insider trading. [1] Following a media report that a British political consulting firm used this harvested data in connection with Donald Trump’s 2016 presidential campaign, Facebook’s stock dropped in value. This suit seeks monetary damages to recover the lost value of this stock by the investors because they were not notified of the data breach. The issue in this case is whether Facebook violated the Securities Exchange Act when it did not disclose information about this data breach to its investors. Facebook argues that they presented this risk as hypothetical to investors and did not have to say that it had already occurred because a reasonable investor would understand the probability of hypothetical risks. [2] 

Nvidia is also arguing before the Court for misleading its investors, facing questions about how much of its sales went to cryptocurrency. A 2018 lawsuit accused Nvidia of violating the Securities Exchange Act for downplaying how much of their revenue growth was caused by purchases and investments in cryptocurrency, which misled analysts and investors interested in understanding the impacts of cryptocurrency on Nvidia’s earnings. [3] Nvidia, however, argues that the plaintiffs bringing the suit do not meet the requirements of the 1995 Private Securities Litigation Reform Act, which prevents plaintiffs from intentionally bringing frivolous lawsuits with little evidence in hopes of achieving quick settlements. [4] With heightened evidence required to accuse a business of securities fraud, it is more difficult for plaintiffs to accuse Nvidia of misleading investors. 

The Supreme Court has recently ruled in favor of businesses by weakening the powers of federal agencies to regulate companies. In Securities and Exchange Commission v. Jarkesy (2024), the Court placed limits on the Securities and Exchange Commission’s (SEC) ability to act on proceedings regarding fraud by determining that George Jarkesy, who was accused of securities fraud, was entitled by the Seventh Amendment to a trial by jury. Thus, the SEC’s practice of litigating before Administrative Law Judges to seek civil monetary penalties is unconstitutional. [5] The SEC now has a weakened ability to regulate fraud through its administrative courts and instead must hold hearings in courts with juries, posing questions about whether other federal agencies can use administrative courts to enforce laws. This subjects the SEC to external forces of law and diminishes its ability to regulate instances of fraud internally, making it more difficult for it as a federal agency to hold companies and individuals accountable.

In Loper Bright Enterprises v. Raimondo (2024), the Court overturned the Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc. (1986) decision, ruling that, in cases of ambiguous federal legislation, courts must defer to definitions given by federal agencies if those interpretations are reasonable. [6] Raimondo instead establishes that courts, according to the Administrative Procedure Act (APA) of 1946, have independent judgment in interpretations of federal laws and that federal agencies should not receive deference just because of ambiguous legislation. [7] This case severely decreased the authority of federal agencies to use their expertise to guide interpretations of legislation, ultimately proclaiming that the courts have final judgment over what laws mean. This decision also removes the authority to regulate businesses from the hands of federal agencies and gives supremacy to the will of the Court. 

In light of the decisions in both Jarkesy and Raimondo that severely decrease the abilities of federal agencies to regulate and enforce laws in their areas of expertise, the upcoming cases against Facebook and Nvidia could provide the Court with new opportunities to expand the liberties of private companies at the expense of federal regulatory power.

Sources:

1. Securities Exchange Act of 1934, 15 U.S.C. §§ 78a–78ll (1934).
2. John Kruzel, “Facebook, Nvidia ask US Supreme Court to spare them from securities fraud suits,” (November 4, 20249:38 AM EST), https://www.reuters.com/legal/facebook-nvidia-ask-us-supreme-court-spare-them-securities-fraud-suits-2024-11-04/. 
3. Id. 
4. Private Securities Litigation Reform Act of 1995, Pub. L. No. 104-67 (1995). 
5. Securities and Exchange Commission v. Jarkesy, 603 U. S. ___ (2024). 
6. Chevron U.S.A., Inc. v. National Resources Defense Council, Inc., 467 U.S. 837 (1984). 
7. Loper Bright Enterprises v. Raimondo, 603 U.S. ___ (2024).