Facebook wins dismissal of investor lawsuit over privacy breach

© Reuters. FILE PHOTO: Attendees walk past a Facebook logo during Facebook Inc's F8 developers conference in San Jose

By Brendan Pierson

NEW YORK (Reuters) - Facebook Inc (NASDAQ:FB) and its chief executive Mark Zuckerberg on Thursday won dismissal of an investor lawsuit accusing them of deceiving investors about the likely impact of a privacy breach on its stock price, though the investors will be have a chance to refile their case.

U.S. District Judge Edward Davila in San Jose, California said the investors had failed to allege that Facebook or its executives knowingly made false statements that led to investor losses.

Facebook and lawyers for the investors could not immediately be reached for comment.

The class action lawsuit, which was consolidated from several investor complaints filed since last year, also targeted Facebook chief organization officer Sheryl Sandberg and chief financial officer David Wehner.

The investors focus on a privacy breach, first reported in December 2015, that allowed Cambridge Analytica, a British political consulting firm, to access data for an estimated 87 million Facebook users.

In March 2018, multiple media outlets reported that Facebook was still allowing third parties to access user data, and that data from the Cambridge Analytica breach had been used in connection with U.S. President Donald Trump's campaign. The reports caused the company's stock price to drop more than 18 percent in two weeks.

In July 2018, Facebook's stock price dropped sharply again, by nearly 19 percent, immediately after the company revealed in its quarterly earnings report that growth in the number of active users was slowing and total revenues was declining.

The investors claimed in their lawsuit that Facebook and its executives made dozens of statements downplaying the effect that the Cambridge Analytica leak and related user privacy issues would have on its stock price.

Davila, however, said Thursday that they had failed to identify specific instances of the company or its executives knowingly making false statements. He noted that some were forward-looking predictions and others were general expressions of optimism, which generally cannot be the basis for securities fraud lawsuits.

The judge gave the investors until Oct. 26 to file a new version of their complaint, saying it was "possible plaintiffs can cure their allegations by alleging, among other things, more particular facts as to why statements by the individual defendants were false when made."

Facebook is separately facing a nationwide lawsuit from users seeking to hold the company liable under various state and federal laws for allowing third parties, including Cambrdige Analytica, to access their data.