Court Opinion

ID: 9891455
Source: CourtListenerOpinion
Date Created: 2023-10-18 17:01:01.032492+00
Date Added: 2024-06-11T13:47:23.613263
License: Public Domain

FOR PUBLICATION

   UNITED STATES COURT OF APPEALS
        FOR THE NINTH CIRCUIT

In re: FACEBOOK, INC.                       No. 22-15077
SECURITIES LITIGATION,
______________________________             D.C. No. 5:18-cv-
                                              01725-EJD
AMALGAMATED BANK, Lead
Plaintiff; PUBLIC EMPLOYEES’
RETIREMENT SYSTEM OF                          OPINION
MISSISSIPPI; JAMES KACOURIS,
individually and on behalf of all others
similarly situated,

               Plaintiffs-Appellants,

 v.

FACEBOOK, INC.; MARK
ZUCKERBERG; SHERYL
SANDBERG; DAVID M. WEHNER,

               Defendants-Appellees.

       Appeal from the United States District Court
         for the Northern District of California
       Edward J. Davila, District Judge, Presiding

          Argued and Submitted February 8, 2023
                San Francisco, California
2              AMALGAMATED BANK V. FACEBOOK, INC.

                     Filed October 18, 2023

Before: M. Margaret McKeown, Jay S. Bybee, and Patrick
              J. Bumatay, Circuit Judges.

                  Opinion by Judge McKeown;
    Partial Concurrence and Partial Dissent by Judge Bumatay

                          SUMMARY *

               Securities Exchange Act of 1934

    The panel affirmed in part and reversed in part the
district court’s judgment dismissing under Fed. R. Civ. P.
12(b)(6) for failure to state a claim a Third Amended
Complaint in which purchasers of Facebook common stock
between February 3, 2017, and July 25, 2018, (“the
shareholders”) allege that Facebook and its executives
violated Sections 10(b), 20(a), and 20A of the Securities
Exchange Act of 1934 and Rule 10b-5 of the Exchange Act’s
implementing regulations by making materially misleading
statements and omissions regarding (1) the risk of improper
access to Facebook users’ data, (2) Facebook’s internal
investigation into British political consulting firm
Cambridge Analytica, and (3) the control Facebook users
have over their data.
   In March 2018, news broke that Cambridge Analytica
improperly harvested personal data from millions of

*
 This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
            AMALGAMATED BANK V. FACEBOOK, INC.             3

unwitting Facebook users and retained copies of the data
beyond Facebook’s control. In the months that followed, the
public learned that Facebook had known of Cambridge
Analytica’s misconduct for over two years and failed to
inform affected users, and that Facebook surreptitiously
allowed certain whitelisted third-party apps to access users’
Facebook friend data without the users’ friends’
consent. Facebook and its executives made various
statements before and after the news announcements
assuring users that they fully controlled their data on
Facebook and that no third party would access the data
without their consent. In the wake of the Cambridge
Analytica and whitelisting scandals, Facebook’s stock price
suffered two significant drops totaling more than $200
billion in market capitalization.
    The panel considered whether, under the heightened
standard of the Private Securities Litigation Reform Act, the
shareholders (1) adequately pleaded falsity as to the
challenged risk statements, (2) adequately pleaded scienter
as to the Cambridge Analytica investigation statements, and
(3) adequately pleaded loss causation as to the user control
statements.
    First, the panel held that the shareholders adequately
pleaded falsity as to the statements warning that misuse of
Facebook users’ data could harm Facebook’s business,
reputation, and competitive position and the district court
erred by dismissing the complaint as to those
statements. The panel wrote that, as in In re Alphabet Sec.
Litig., 1 F.4th 687 (9th Cir. 2021), the shareholders here
adequately pleaded falsity as to statements in a 2016 Form
10-K filing with the SEC in which Facebook represented the
risk of third parties improperly accessing and using
Facebook users’ data as purely hypothetical. The panel held
4           AMALGAMATED BANK V. FACEBOOK, INC.

that the district court correctly dismissed the challenged
statements regarding the risk of security breaches and the
risk of the public not perceiving Facebook’s products to be
“useful, reliable, and trustworthy”; those statements do not
relate to the misuse of Facebook user data by Cambridge
Analytica, and the shareholders do not allege that those risks
had materialized at the time of the 2016 10-K such that they
were false or materially misleading. The panel left to the
district court on remand whether the shareholders can satisfy
the other elements of the claims with respect to risk
statements.
    Second, the panel agreed with the district court that the
shareholders failed to plead scienter as to Cambridge
Analytica investigation statements, including ones made by
a Facebook spokesperson to journalists in March 2017 that
Facebook’s internal investigation into Cambridge Analytica
had “not uncovered anything that suggest[ed] wrongdoing”
related to Cambridge Analytica’s work on the Brexit and
Trump campaigns. The panel wrote that the shareholders
pleaded only that the spokesperson should have known that
Facebook’s investigation had uncovered misconduct, not
that the spokesperson actually knew of any misconduct or
even that there was a strong inference of an “intent to
deceive, manipulate, or defraud.”
    Third, as to Facebook’s user control statements:
    The panel affirmed the dismissal as to statements related
to Facebook’s goals of transparency and control—
statements that were not false when they were made. The
panel also affirmed the dismissal of a standalone claim
relating to the June 2018 whitelisting revelation, given that
the revelation was unaccompanied by a stock price drop.
            AMALGAMATED BANK V. FACEBOOK, INC.             5

    The panel held that the shareholders adequately pleaded
loss causation as to Facebook’s statements—made before
the March 16, 2018, stock price drop—assuring users that
they control their content and information on the
platform. The panel wrote that the shareholders adequately
pleaded that the March 2018 revelation about Cambridge
Analytica was the first time Facebook investors were alerted
that Facebook users did not have complete control over their
own data, and also adequately pleaded that Facebook did not
make public statements about the Cambridge Analytica issue
between 2015 and 2018.
    The panel held that the shareholders adequately pleaded
that the Cambridge Analytica and whitelisting revelations,
not any other factor, caused the July 2018 stock drop. The
panel therefore reversed the district court’s dismissal of
claims as to Facebook’s statements regarding data control
that predated the June 3, 2018, whitelisting revelation.
   The panel remanded for further proceedings.
    Judge Bumatay concurred in part and dissented in
part. He joined the majority in holding that the shareholders
failed to sufficiently allege a falsity in Facebook’s
Cambridge Analytica investigation statements. He also
joined the majority in holding that the shareholders did
allege a falsity and loss from the user control statements—
but only as those statements relate to Facebook’s practice of
“whitelisting.” He disagreed with the majority on two
fundamental points. In his view, the shareholders failed to
sufficiently allege that Facebook’s risk factor statements in
its public filings were fraudulent, and didn’t show that
Facebook’s user control statements were false based on the
Cambridge Analytica revelations.
6          AMALGAMATED BANK V. FACEBOOK, INC.

                      COUNSEL

Thomas C. Goldstein (argued), Kevin K. Russell, and Erica
O. Evans, Goldstein Russell & Woofter LLC, Bethesda,
Maryland; John C. Browne and Jeremy P. Robinson,
Bernstein Litowitz Berger & Grossman LLP, New York,
New York; Joseph D. Daley, Danielle S. Myers, and Darren
J. Robbins, Robbins Geller Rudman & Dowd LLP, San
Diego, California; Jason C. Davis, Robbins Geller Rudman
& Dowd LLP, San Francisco, California; Kathleen Foley,
Munger Tolles & Olson LLP, Washington, D.C.; Jeremy A.
Lieberman, Pomerantz LLP, New York, New York; Jennifer
Pafiti, Pomerantz LLP, Los Angeles, California; for
Plaintiff-Appellant.
Joshua S. Lipshutz (argued), Katherine M. Meeks, and
Trenton J. Van Oss, Gibson Dunn & Crutcher LLP,
Washington, D.C.; Brian M. Lutz and Michael J. Kahn,
Gibson Dunn & Crutcher LLP, San Francisco, California;
Orin S. Snyder, Gibson Dunn & Crutcher LLP, New York,
New York; Paul J. Collins, Gibson Dunn & Crutcher LLP,
Palo Alto, California; for Defendant-Appellee.
              AMALGAMATED BANK V. FACEBOOK, INC.                      7

                             OPINION

McKEOWN, Circuit Judge:

     In March 2018, news broke that Cambridge Analytica, a
British political consulting firm, improperly harvested
personal data from millions of unwitting Facebook users and
retained copies of the data beyond Facebook’s control. In
the months that followed, the public learned that Facebook
had known of Cambridge Analytica’s misconduct for over
two years and failed to inform affected users, and that
Facebook surreptitiously allowed certain whitelisted third-
party apps to access users’ Facebook friend data without the
users’ friends’ consent. Facebook and its executives made
various statements before and after the news announcements
assuring users that they fully controlled their data on
Facebook and that no third party would access the data
without their consent. In the wake of the Cambridge
Analytica and whitelisting scandals, Facebook’s stock price
suffered two significant drops totaling more than $200
billion in market capitalization. 1
    Appellants, collectively “the shareholders,” purchased
shares of Facebook common stock between February 3,
2017, and July 25, 2018. Soon after the first stock drop in
March 2018, they filed a securities fraud action against
Facebook and three of its executives: Mark Zuckerberg,
Facebook’s chief executive officer, Sheryl Sandberg,
Facebook’s then-chief operating officer, and David Wehner,

1
  In late 2021, the parent company Facebook changed its name to Meta
Platforms, Inc. Because the events in this case occurred before 2021, we
refer to Facebook and its former parent company, Facebook, Inc., simply
as Facebook.
8             AMALGAMATED BANK V. FACEBOOK, INC.

Facebook’s chief financial officer. The shareholders allege
that Facebook and the executives violated Sections 10(b),
20(a), and 20A of the Securities Exchange Act of 1934 and
Rule 10b-5 of the Exchange Act’s implementing regulations
by making materially misleading statements and omissions
regarding the risk of improper access to Facebook users’
data, Facebook’s internal investigation into Cambridge
Analytica, and the control Facebook users have over their
data. Although the shareholders made multiple claims in
their Third Amended Complaint, only these three categories
of claims are the subject of this appeal.
    This case calls on us to consider whether, under the
heightened standard of the Private Securities Litigation
Reform Act (“PSLRA”), the shareholders adequately
pleaded falsity as to the challenged risk statements,
adequately pleaded scienter as to the Cambridge Analytica
investigation statements, and adequately pleaded loss
causation as to the user control statements. We affirm in part
and reverse in part. 2
                        I. BACKGROUND
   The Third Amended Complaint clocked in at 285 pages.
Although impressive in terms of magnitude, we nonetheless
examine the allegations individually and holistically, not by
weight or volume. 3

2
  For ease of reference, we use the categories laid out in the Third
Amended Complaint. On appeal, the shareholders challenge the district
court’s dismissal of the statements in ¶¶ 501–05, 507–14, 519, 525, 530,
533, and 537–38 of the Third Amended Complaint.
3
 These facts are based on the allegations in the Third Amended
Complaint and may not reflect Facebook’s current practices.
            AMALGAMATED BANK V. FACEBOOK, INC.              9

    Facebook, with more than 1.3 billion daily users at the
inception of this case, is the world’s largest social media
platform. On Facebook, users share personal content, “like”
and comment on others’ shared content, play games
designed by third-party app developers, and more. Facebook
collects data from its users, including the types of content
they access, the devices they use to access Facebook, their
payment information, and their location. The collected data
is used to individualize the content a user sees on Facebook.
For example, Facebook may suggest local events to a user
and tailor the advertisements a user sees. Additionally, a
third-party app or website integrated onto the Facebook
platform may access user information when the user engages
with its services on the platform. For example, a Facebook
user may play an online game added to the Facebook
platform by a third-party developer.            According to
Facebook’s terms, the game developer could then access the
user’s age range, location, language preference, list of
friends, and other information the user shared with them.
    This is not the first time Facebook has found itself in
legal hot water over its data sharing practices. In 2012,
Facebook settled charges with the Federal Trade
Commission (“FTC”) that it deceived users by representing
that their personal data was private but allowing the data to
be shared, including with third-party apps. Facebook
entered a twenty-year consent decree as part of the
settlement, agreeing not to misrepresent the extent to which
Facebook users could control the privacy of their own data.
In 2019, the FTC imposed a “record-breaking $5 billion
penalty” on Facebook for violating the consent decree by
“deceiving users about their ability to control the privacy of
10            AMALGAMATED BANK V. FACEBOOK, INC.

their personal information.” 4 Facebook users have also sued
the company alleging that Facebook is dishonest about its
privacy practices. See, e.g., In re Facebook, Inc. Internet
Tracking Litig., 956 F.3d 589 (9th Cir. 2020); Campbell v.
Facebook, Inc., 951 F.3d 1106 (9th Cir. 2020).
    In 2014, Zuckerberg announced publicly that Facebook
would no longer allow third parties to access and collect data
from users’ friends, noting that Facebook users were
surprised to learn that their Facebook friends could share
their data with a third party without their consent. He
explained that Facebook users had grown skeptical that their
data was safe on the platform, and that Facebook was doing
everything it could “to put people first and give people the
tools they need” to trust that Facebook would keep their data
safe. That same year, however, Zuckerberg and Sandberg
created a “reciprocity” system in which certain third-party
apps that provided “reciprocal value to Facebook” could be
“whitelisted,” meaning that those apps were exempt from the
ban on third-party data access and collection. The
whitelisting practice continued until mid-2018.
    In September 2015, Facebook employees noticed that
Cambridge Analytica was “receiving vast amounts of
Facebook user data.” Facebook’s political team described
Cambridge Analytica as a “sketchy” firm that had
“penetrated” Facebook’s market and requested an
investigation into what Cambridge Analytica was doing with
the data. The platform policies team concluded that it was
unlikely Cambridge Analytica could use Facebook users’

4
  Press Release, Fed. Trade Comm’n, FTC Imposes $5 Billion Penalty
and Sweeping New Privacy Restrictions on Facebook (July 24, 2019),
https://www.ftc.gov/news-events/news/press-releases/2019/07/ftc-
imposes-5-billion-penalty-sweeping-new-privacy-restrictions-facebook.
             AMALGAMATED BANK V. FACEBOOK, INC.               11

data for political purposes without violating Facebook’s
policies. In November 2015, Facebook paid Aleksandr
Kogan, a Cambridge University academic who helped
Cambridge Analytica obtain user data from Facebook, to
give an internal presentation on the lessons he learned from
collecting and working with the Facebook data.
    Trouble for Facebook began in December 2015, when
The Guardian reported that Cambridge Analytica had
created a database of information about American voters by
harvesting their Facebook data. 5 The harvested data
originated from a personality quiz integrated onto Facebook
by Kogan. When Facebook users completed the quiz, Kogan
gained access to their data as well as data from their
Facebook friends who had not taken the quiz, including each
user’s name, gender, location, birthdate, “likes,” and list of
Facebook friends. Facebook’s app review team initially
rejected the personality quiz because it collected more user
data than necessary to operate, but the quiz nonetheless
became available to Facebook users. Although only about
250,000 Facebook users took the personality quiz, Kogan
harvested data from over thirty million users, most of whom
did not consent to the data collection.
    Kogan used the Facebook “likes” collected from the quiz
to train an algorithm that assigned personality scores to
Facebook users, including users who had not taken the quiz.
The information was saved in a database that classified
American voters by scoring them on five personality traits:
“openness to experience, conscientiousness, extraversion,

5
  See Harry Davies, Ted Cruz Using Firm that Harvested Data on
Millions of Unwitting Facebook Users, Guardian (Dec. 11, 2015),
https://www.theguardian.com/us-news/2015/dec/11/senator-ted-cruz-
president-campaign-facebook-user-data.
12          AMALGAMATED BANK V. FACEBOOK, INC.

agreeableness, and neuroticism (the ‘OCEAN scale’).”
According to The Guardian, Cambridge Analytica used the
harvested OCEAN scale data to help Ted Cruz’s presidential
campaign “gain an edge over Donald Trump” in the
Republican Party primaries.
    In response to the Guardian article, a Facebook
spokesperson stated that the company was “carefully
investigating” the situation, that misusing user data was a
violation of Facebook’s policies, and that the company
would “take swift action” against third parties found to have
misused Facebook users’ data. In a private email exchange
in December 2015, a Facebook executive told a Cambridge
Analytica executive that Cambridge Analytica violated
Facebook’s policies and terms by using data that Kogan
“improperly derived” from Facebook. Cambridge Analytica
agreed in January 2016 to delete the personality score data
harvested from Facebook.
    Notwithstanding Cambridge Analytica’s assurance that
it would delete the data, Facebook continued to investigate
the data usage. In June 2016, Facebook negotiated a
confidential settlement with Kogan, who certified that he
had deleted the data in his possession derived from Facebook
“likes.” Kogan also provided Facebook with the identity of
every entity with which he had shared raw Facebook user
data. In doing so, Kogan revealed that he had shared
derivative and raw data from Facebook users—not just the
personality score data—with Cambridge Analytica’s chief
executive, Alexander Nix, and that the data was still being
used in violation of Facebook’s stated policies. Facebook
asked Nix to certify that all data harvested from the
Facebook personality quiz was deleted, but Nix refused to
do so. In October 2016, The Washington Post reported that
Cambridge Analytica continued to use data based on the
             AMALGAMATED BANK V. FACEBOOK, INC.                 13

OCEAN scale to benefit the Trump presidential campaign. 6
The article did not say explicitly that the social-media data
came from Facebook, but the use of the OCEAN scale
suggested that Cambridge Analytica may have been using
the data originally harvested from Kogan’s personality quiz
on Facebook.
    1. Facebook’s Public Filings
    Despite the ongoing developments regarding Cambridge
Analytica, Facebook represented in its 2016 Form 10-K,
filed with the Securities Exchange Commission (“SEC”) in
February 2017, that third-party misuse of Facebook users’
personal data was a purely hypothetical risk that could harm
the company if it materialized. For example, the 10-K stated
that “[a]ny failure to prevent or mitigate . . . improper access
to or disclosure of our data or user data . . . could result in
the loss or misuse of such data, which could harm
[Facebook’s] business and reputation and diminish our
competitive position.” The statements about the risks of
improper access or disclosure appeared in the “Risk Factors”
section of the 10-K, in a subsection that also discussed the
risks of security breaches such as cyberattacks, hacking, and
phishing that could result in Facebook user data falling into
the wrong hands.
    2. Continued Press about Cambridge Analytica
   In March 2017, The Guardian published another article
about Cambridge Analytica’s political activity. The article

6
  Michael Kranish, Trump’s Plan for a Comeback Includes Building a
‘Psychographic’ Profile of Every Voter, Wash. Post (Oct. 27, 2016),
https://www.washingtonpost.com/politics/trumps-plan-for-a-comeback-
includes-building-a-psychographic-profile-of-every-
voter/2016/10/27/9064a706-9611-11e6-9b7c-
57290af48a49_story.html.
14            AMALGAMATED BANK V. FACEBOOK, INC.

discussed how Cambridge Analytica used data derived from
Facebook “likes” to train algorithms and quoted a
Cambridge Analytica spokesperson’s denial that the firm
had access to Facebook “likes.” 7 The article also quoted a
Facebook spokesperson’s statement that Facebook’s
investigation into Cambridge Analytica had not yet
uncovered any misconduct related to the firm’s work on
political matters, specifically the Trump presidential
campaign or the Brexit Leave campaign. A Facebook
spokesperson made similar comments to journalists later that
month. 8 Throughout 2017 and early 2018, Facebook and its
executives assured Facebook users that “no one is going to
get your data that shouldn’t have it,” that Facebook and its
apps had “long been focused on giving people transparency
and control,” and more.
    On March 12, 2018, The New York Times and The
Guardian contacted Facebook for comment on joint articles
the outlets planned to publish about Cambridge Analytica’s
misuse of Facebook users’ data. The articles would report
that Cambridge Analytica had not actually deleted the
improperly collected Facebook user data from 2015. Before

7
 Jamie Doward, Carole Cadwalladr & Alice Gibbs, Watchdog to Launch
Inquiry into Misuse of Data in Politics, Guardian (Mar. 4, 2017),
https://www.theguardian.com/technology/2017/mar/04/cambridge-
analytics-data-brexit-trump.
8
  Tim Sculthorpe, Privacy Watchdog Launces a Probe into How the
Leave Campaigns Used Voters’ Personal Data to Win Brexit, Daily Mail
(Mar.      5,     2017),      https://www.dailymail.co.uk/news/article-
4283102/amp/Privacy-watchdog-launches-probe-Leave-use-data.html;
Mattathias Schwartz, Facebook Failed to Protect 30 Million Users From
Having Their Data Harvested By Trump Campaign Affiliate, Intercept
(Mar. 30, 2017), https://theintercept.com/2017/03/30/facebook-failed-
to-protect-30-million-users-from-having-their-data-harvested-by-
trump-campaign-affiliate/.
             AMALGAMATED BANK V. FACEBOOK, INC.                 15

the articles went to print, Facebook announced on its
investor relations website that it was suspending Cambridge
Analytica for violating its policies by sharing Facebook
users’ data without the users’ consent and for failing to
delete the improperly collected data. Facebook explained
that, in 2015, it had demanded certification that Cambridge
Analytica and Kogan had destroyed the harvested user data,
but that Facebook had just learned that not all the data was
deleted. Soon after, The New York Times reported that
Cambridge Analytica’s use of Facebook users’ data was
“one of the largest data leaks in the social network’s
history.” 9 The article took the position that most people
whose data was harvested had not consented to the
collection, that Cambridge Analytica had used the data to
benefit the Trump presidential campaign in 2016, and that
“copies of the data still remain[ed] beyond Facebook’s
control.” 10
    Other media outlets and government officials sprang into
action. Political figures in the United States and Europe
called for investigation into the Cambridge Analytica
privacy scandal. Reporters wrote that Facebook knew about
the data breach for years and failed to disclose it to the
millions of affected users. In particular, CNN observed that
“[n]o one ha[d] provided an adequate explanation for why
Facebook did not disclose Kogan’s violation to the more
than 50 million users who were affected when the company

9
  Matthew Rosenberg, Nicholas Confessore & Carole Cadwalladr, How
Trump Consultants Exploited the Facebook Data of Millions, N.Y.
Times                (Mar.                17,                2018),
https://www.nytimes.com/2018/03/17/us/politics/cambridge-analytica-
trump-campaign.html.
10
     Id.
16            AMALGAMATED BANK V. FACEBOOK, INC.

first learned about it in 2015.” 11 That same day, an article in
Seeking Alpha warned that “[i]f Cambridge Analytica was
able to acquire information on tens of millions of Facebook
users so quickly and easily, and then keep the information
for years without Facebook suspecting otherwise, then that
shows a serious flaw in Facebook’s ability to keep exclusive
control over its information.” 12
     3. Facebook’s Stock Price Drop and Low Revenue and
     Profit Growth
    The price of Facebook’s stock declined significantly in
the week that followed the Cambridge Analytica revelations.
On March 19, 2018—the first trading day after the news
broke—Facebook shares fell almost 7%. The next day,
Facebook shares fell an additional 2.5%. After one week,
Facebook’s stock price had dropped nearly 18% from the
price before the news about Cambridge Analytica was
published, reflecting a loss of more than $100 billion in
market capitalization. At this juncture, the shareholders filed
their first securities fraud complaint against Facebook.
    In the aftermath, Facebook reiterated its statements that
users have privacy and control over their personal data on
the platform. At an April 2018 press conference, Zuckerberg
stated that “you have control over everything you put on the
service.” Later that month, Zuckerberg issued a public post

11
   Dylan Byers, Facebook Is Facing an Existential Crisis, CNN (Mar.
19,                                                          2018),
https://money.cnn.com/2018/03/19/technology/business/facebook-data-
privacy-crisis/index.html.
12
    Erich Reimer, The Cambridge Analytica Mishap Is Serious for
Facebook,         Seeking       Alpha      (Mar.     19,      2018),
https://seekingalpha.com/article/4157578-cambridge-analytica-mishap-
is-serious-for-facebook.
            AMALGAMATED BANK V. FACEBOOK, INC.             17

on Facebook, saying: “You’ve been hearing a lot about
Facebook lately and how your data is being used. While this
information can sometimes be confusing and technical, it’s
important to know that you are in control of your Facebook,
what you see, what you share, and what people see about
you.” Zuckerberg also testified before the United States
Senate that users have control over both what they share on
Facebook and their personal data connected to
advertisements on the platform.
    On June 3, 2018, more news emerged about Facebook’s
privacy practices. The New York Times reported that
Facebook had continued sharing the data of users and their
Facebook friends with dozens of whitelisted third parties like
Apple, Microsoft, and Samsung without the users’ express
consent. 13 The article reported that Facebook’s whitelisting
policy violated the company’s FTC consent decree and
contradicted Zuckerberg’s 2014 announcement that
Facebook’s third-party data sharing practice had been
shuttered. 14 An FTC investigator testified before the
Parliament of the United Kingdom that, for nearly a decade,
the whitelisted apps were allowed to completely override
Facebook users’ privacy settings. Multiple news outlets
subsequently reported that Facebook shared its users’ data
with foreign entities “believed to be national security risks”
without the users’ knowledge.
   Finally, on July 25, 2018, Facebook announced
unexpectedly low revenue growth, profitability, and user
growth in its Q2 earnings call. Facebook stated that the

13
   Gabriel J.X. Dance, Nicholas Confessore & Michael Laforgia,
Facebook Gave Device Makers Deep Access to Data on Users and
Friends, N.Y. Times (June 3, 2018), https://nyti.ms/3aFIMAI.
14
     Id.
18          AMALGAMATED BANK V. FACEBOOK, INC.

disappointing revenue growth occurred because it was
“putting privacy first” as well as implementing the European
Union’s General Data Protection Regulation (“GDPR”).
Zuckerberg reported that the GDPR rollout also resulted in a
decline in monthly Facebook users across Europe. The day
after the earnings call, Facebook’s stock price dropped
nearly 19%. Analysts and investors attributed the stock drop
to the company’s GDPR implementation, the requisite
increased security and privacy required of tech companies,
and the Cambridge Analytica and whitelisting scandals.
     4. Filing of Amended Complaints
    The revelation of the Cambridge Analytica and
whitelisting scandals and the two Facebook stock price drops
precipitated an amended filing by the shareholders in
October 2018. The shareholders amended the complaint
again in November 2019 (Second Amended Complaint) and
October 2020 (Third Amended Complaint). They brought
claims against Facebook, Zuckerberg, Sandberg, and
Wehner under Sections 10(b), 20(a), and 20A of the
Securities Exchange Act of 1934 and Rule 10b-5 of the
Exchange Act’s implementing regulations.                 The
shareholders allege that Facebook, through the executive
defendants or a company spokesperson, made several false
or materially misleading statements between February 3,
2017, and July 25, 2018, “the class period.” The challenged
statements fall into three categories: (1) statements in
Facebook’s 2016 Form 10-K regarding the risk of improper
third-party access to and disclosure of Facebook users’ data;
(2) statements regarding Facebook’s investigation into
Cambridge Analytica’s 2015 misconduct; and (3) statements
regarding the control Facebook users have over their data on
the platform.
             AMALGAMATED BANK V. FACEBOOK, INC.             19

    The district court dismissed the shareholders’ First
Amended Complaint and Second Amended Complaint
without prejudice under Federal Rule of Civil Procedure
12(b)(6), giving the shareholders leave to amend both times.
After determining that the Third Amended Complaint failed
to remedy the deficiencies of the first two amended filings,
the district court dismissed the shareholders’ claims without
leave to amend.
                        II. ANALYSIS
    Although the scope of claims under Section 10(b) of the
Exchange Act and Rule 10b-5 of the Exchange Act’s
implementing regulations is well understood and well-tread
in the Ninth Circuit, these principles bear repeating so that
our analysis is viewed in context.
    Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b),
prohibits “manipulative or deceptive” practices in
connection with the purchase or sale of a security. See In re
Alphabet Sec. Litig., 1 F.4th 687, 699 (9th Cir. 2021). Rule
10b-5 of the Exchange Act’s implementing regulations is
coextensive with Section 10(b). S.E.C. v. Zandford, 535
U.S. 813, 816 n.1 (2002). The Rule prohibits making “any
untrue statement of a material fact” or omitting material facts
“necessary in order to make the statements made, in the light
of the circumstances under which they were made, not
misleading.” Glazer Cap. Mgmt., L.P. v. Forescout Techs.,
Inc. (Glazer II), 63 F.4th 747, 764 (9th Cir. 2023) (quoting
17 C.F.R. § 240.10b-5(b)). To state a claim under Section
10(b) and Rule 10b-5, “a plaintiff must allege: (1) a material
misrepresentation or omission by the defendant (‘falsity’);
(2) scienter; (3) a connection between the misrepresentation
or omission and the purchase or sale of a security; (4)
reliance upon the misrepresentation or omission; (5)
20           AMALGAMATED BANK V. FACEBOOK, INC.

economic loss; and (6) loss causation.” Id. (internal
quotation marks omitted) (quoting In re NVIDIA Corp. Sec.
Litig., 768 F.3d 1046, 1052 (9th Cir. 2014)). Claims under
Sections 20(a) and 20A of the Exchange Act are derivative
“and therefore require an independent violation of the
Exchange Act,” so the shareholders must successfully plead
a Section 10(b) claim to succeed on their claims under
Sections 20(a) and 20A. See Johnson v. Aljian, 490 F.3d
778, 781 (9th Cir. 2007); see also Glazer II, 63 F.4th at 765.
    Complaints alleging securities fraud are also subject to
heightened pleading requirements under the Private
Securities Litigation Reform Act (“PSLRA”) and Rule 9(b).
Glazer II, 63 F.4th at 765. The PSLRA requires that
complaints alleging falsity “specify each statement alleged
to have been misleading, the reason or reasons why the
statement is misleading, and, if an allegation regarding the
statement or omission is made on information and belief, the
complaint shall state with particularity all facts on which that
belief is formed.” Id. (quoting 15 U.S.C. § 78u-4(b)(1)). To
plead scienter under the PSLRA, “the complaint must ‘state
with particularity facts giving rise to a strong inference that
the defendant acted with the required state of mind.’” Id. at
766 (quoting 15 U.S.C. § 78u-4(b)(2)(A)). When evaluating
“whether the strong inference standard is met,” the court first
“determines whether any one of the plaintiff’s allegations is
alone sufficient to give rise to a strong inference of scienter.”
Id. If no individual allegation is sufficient, the court
“conducts a ‘holistic’ review to determine whether the
allegations combine to give rise to a strong inference of
scienter.” Id. (quoting Zucco Partners, LLC v. Digimarc
Corp., 552 F.3d 981, 992 (9th Cir. 2009)). Rule 9(b)
similarly requires plaintiffs to “state with particularity the
circumstances constituting fraud.” Id. at 765 (quoting Fed.
             AMALGAMATED BANK V. FACEBOOK, INC.                21

R. Civ. P. 9(b)). Fraud allegations under Rule 9(b) “must be
‘specific enough to give defendants notice of the particular
misconduct which is alleged to constitute the fraud charged
so that they can defend against the charge and not just deny
that they have done anything wrong.’” Id. (quoting Bly-
Magee v. California, 236 F.3d 1014, 1019 (9th Cir. 2001)).
     We review de novo the dismissal of a complaint for
failure to state a claim, accepting the factual allegations as
true and viewing the facts “in the light most favorable” to the
shareholders. Id. at 763. In addition to the pleading
requirements of the PSLRA and Rule 9(b), Rule 8(a)
requires that a complaint “contain sufficient factual matter,
accepted as true, to ‘state a claim to relief that is plausible on
its face.’” Id. (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009)). The factual allegations in the complaint must
“allow[] the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.” Id. (quoting
Iqbal, 556 U.S. at 678).
    A. Risk Statements
     The essence of the challenged risk statements is that,
although Facebook knew Cambridge Analytica had
improperly accessed and used Facebook users’ data,
Facebook represented in its 2016 Form 10-K that only the
hypothetical risk of improper third-party misuse of
Facebook users’ data could harm Facebook’s business,
reputation, and competitive position.           For example,
Facebook’s 2016 10-K warned that the “failure to prevent or
mitigate security breaches and improper access to or
disclosure of our data or user data could result in the loss or
misuse of such data” and that if “third parties or developers
fail to adopt or adhere to adequate data security practices . . .
our data or our users’ data may be improperly accessed, used,
22           AMALGAMATED BANK V. FACEBOOK, INC.

or disclosed.”       Additionally, two of the challenged
statements warn that Facebook cannot provide “absolute
[data] security” and that Facebook’s business will suffer if
the public does not perceive Facebook’s products to be
“useful, reliable, and trustworthy.”
    The district court held that the shareholders failed to
plead falsity as to the risk statements, but its holding
predated our decision in In re Alphabet. Without the benefit
of our reasoning in In re Alphabet, the district court held that
the risk statements were not actionably false because
Cambridge Analytica’s misconduct was public knowledge at
the time the statements were made and because, while the
10-K warned of risks of harm to Facebook’s business,
reputation, and competitive position, the shareholders failed
to allege that Cambridge Analytica’s misconduct was
causing such harm when the statements were made. This
approach overlooks the reality of what Facebook knew.
    In the securities fraud context, statements and omissions
are actionably false or misleading if they “directly contradict
what the defendant knew at that time,” Khoja v. Orexigen
Therapeutics, Inc., 899 F.3d 988, 1008 (9th Cir. 2018), or
“create an impression of a state of affairs that differs in a
material way from the one that actually exists,” Brody v.
Transitional Hosps. Corp., 280 F.3d 997, 1006 (9th Cir.
2002). The Exchange Act does not, however, “create an
affirmative duty to disclose any and all material
information.” Glazer II, 63 F.4th at 764 (quoting Matrixx
Initiatives, Inc. v. Siracusano, 563 U.S. 27, 44 (2011)).
Disclosure is mandatory only when necessary to ensure that
a statement made is “not misleading.” Id. (quoting Matrixx
Initiatives, 563 U.S. at 44). Accordingly, if the market has
already “become aware of the allegedly concealed
information,” the allegedly false information or material
            AMALGAMATED BANK V. FACEBOOK, INC.             23

omission “‘would already be reflected in the stock’s price’
and the market ‘will not be misled.’” Provenz v. Miller, 102
F.3d 1478, 1492 (9th Cir. 1996) (quoting In re Convergent
Techs. Sec. Litig., 948 F.2d 507, 513 (9th Cir. 1991)).
    Our recent decision in In re Alphabet is instructive. We
held that falsity allegations were sufficient to survive a
motion to dismiss when the complaint plausibly alleged that
a company’s SEC filings warned that risks “could” occur
when, in fact, those risks had already materialized. In re
Alphabet, 1 F.4th at 702–05. This juxtaposition of a “could
occur” situation with the fact that the risk had materialized
mirrors the allegations in the Facebook scenario. In its 2017
Form 10-K, Alphabet warned of the risk that public concerns
about its privacy and security practices “could” harm its
reputation and operating results. Id. at 694. The following
year, Alphabet discovered a privacy bug that had threatened
thousands of users’ personal data for three years. Id. at 695.
Nonetheless, in its April and July 2018 Form 10-Q filings,
Alphabet repeated the 2017 statement that public concern
about its privacy and security “could” cause harm. Id. at
696. In the 10-Qs, Alphabet also stated that there had “been
no material changes” to its “risk factors” since the 2017 10-
K. Id. Although news of the privacy bug had not become
public at the time of the 10-Qs, we reasoned that the risks of
harm to Alphabet “ripened into actual harm” when Alphabet
employees discovered the privacy bug and the “new risk that
this discovery would become public.” Id. at 703. The
plaintiffs thus “plausibly allege[d] that Alphabet’s warning
in each Form 10-Q of risks that ‘could’ or ‘may’ occur [was]
misleading to a reasonable investor when Alphabet knew
that those risks had materialized.” Id. at 704.
    As in In re Alphabet, the shareholders here adequately
pleaded falsity as to the statements in Facebook’s 2016 10-
24          AMALGAMATED BANK V. FACEBOOK, INC.

K that represented the risk of third parties improperly
accessing and using Facebook users’ data as purely
hypothetical. The shareholders pleaded with particularity
that Facebook employees flagged Cambridge Analytica in
September 2015 for potentially violating Facebook’s terms,
that Kogan taught Facebook in November 2015 about the
dataset Cambridge Analytica had compiled, and that a
Facebook executive told Cambridge Analytica in December
2015 that the firm had violated Facebook’s user data
policies. The shareholders also alleged that after Facebook
learned in June 2016 that Cambridge Analytica lied in
December 2015 about deleting the data derived from
Facebook “likes,” Cambridge Analytica’s chief executive
refused to certify that the data had actually been deleted.
These allegations, if true, more than support the claim that
Facebook was aware of Cambridge Analytica’s misconduct
before February 2017, so Facebook’s statements about risk
management “directly contradict[ed]” what the company
knew when it filed its 2016 10-K with the SEC. Glazer II,
63 F.4th at 764.
     Referencing Facebook’s risk statements as including
damage to its business, reputation, and competitive position,
the dissent asserts that the risk statements in Facebook’s
2016 10-K were not false or materially misleading because
they “do not represent that Facebook was free from
significant breaches at the time of the filing.” The
inadequacy of the risk statements, however, is not that
Facebook did not disclose Cambridge Analytica’s breach of
its security practices. Instead, the problem is that Facebook
represented the risk of improper access to or disclosure of
Facebook user data as purely hypothetical when that exact
risk had already transpired. A reasonable investor reading
the 10-K would have understood the risk of a third party
             AMALGAMATED BANK V. FACEBOOK, INC.               25

accessing and utilizing Facebook user data improperly to be
merely conjectural.
     The dissent’s suggestion that the shareholders have not
adequately pleaded falsity because they “have not
sufficiently alleged that Facebook knew that its reputation
and business were already harmed at the time of the filing of
the 10-K” fares no better. Our case law does not require
harm to have materialized for a statement to be materially
misleading. Facebook’s statement was plausibly materially
misleading even if Facebook did not yet know the extent of
the reputational harm it would suffer as a result of the breach:
Because Facebook presented the prospect of a breach as
purely hypothetical when it had already occurred, such a
statement could be misleading even if the magnitude of the
ensuing harm was still unknown. Put differently, a company
may make a materially misleading statement when it “speaks
entirely of as-yet-unrealized risks” when the risks have
“already come to fruition.” Berson v. Applied Signal Tech.,
527 F.3d 982, 987 (9th Cir. 2008); see also In re Alphabet,
1 F.4th at 702–05 (holding that risk statements in Alphabet’s
SEC filings were materially misleading even where
Alphabet’s identified harm of damage to its “business,
financial condition, results of operations,” and more had not
yet materialized at the time of the filings). The mere fact that
Facebook did not know whether its reputation was already
harmed when filing the 10-K does not avoid the reality that
it “create[d] an impression of a state of affairs that differ[ed]
in a material way from the one that actually exist[ed].”
Brody, 280 F.3d at 1006.
   The dissent endeavors to distinguish In re Alphabet by
explaining that before Alphabet made SEC filings
containing material misstatements, it circulated an internal
memorandum detailing that there would be immediate
26           AMALGAMATED BANK V. FACEBOOK, INC.

regulatory scrutiny if the public discovered its privacy bug.
While true, our holding did not rest on the internal
memorandum to conclude that the statements were plausibly
materially misleading; instead, we reasoned that a warning
of “risks that ‘could’ or ‘may’ occur is misleading to a
reasonable investor when Alphabet knew that those risks”—
the privacy bug itself—“had materialized.” 1 F.4th at 704.
Here, as in In re Alphabet, it is the fact of the breach itself,
rather than the anticipation of reputational or financial harm,
that caused anticipatory statements to be materially
misleading. The shareholders have therefore adequately
pleaded that the risk statements in Facebook’s 2016 10-K
directly contradicted what Facebook knew at the time such
that, in the dissent’s words, Facebook “knew a risk had come
to fruition” and “chose to bury it.”
    Notably, although the dissent seemingly perceives it
otherwise, the extent of Cambridge Analytica’s misconduct
was not yet public when Facebook filed its 2016 10-K. At
the time, the articles in The Guardian and The Washington
Post had alerted readers that Cambridge Analytica collected
data from “a massive pool of mainly unwitting US Facebook
users.” But the Guardian article quoted a Facebook
spokesperson saying that the company would take “swift
action” if Cambridge Analytica was found to have violated
Facebook’s policies, as well as a Ted Cruz spokesperson
saying that the data was acquired legally and with the
permission of Facebook users. In response to the article,
Facebook stated it was “carefully investigating.” Although
the articles may have raised concerns about Cambridge
Analytica’s conduct, Facebook did not confirm before the
2016 10-K was filed that Cambridge Analytica had acted
improperly or whether Facebook had taken the “swift
action” promised if it learned of violations.
            AMALGAMATED BANK V. FACEBOOK, INC.            27

    Indeed, Facebook’s first public statement about the
results of its investigation—which came in March 2017, a
month after the 2016 10-K was filed—represented that no
misconduct had been discovered. At the time the 10-K was
filed in February 2017, the news of Cambridge Analytica’s
misconduct was far from “transmitted to the public with a
degree of intensity and credibility sufficient to effectively
counterbalance any misleading impression.” Provenz, 102
F.3d at 1493 (citation omitted).
    Importantly, and contrary to the dissent’s position, the
placement of the risk statements in Facebook’s 2016 10-K
alongside the possibilities of cyberattacks, hacking, and
phishing, which the shareholders do not allege had
materialized at the time of the 10-K, does not rescue
Facebook’s omission that the risk of improper access and
disclosure had occurred from being materially misleading.
A close read of the 10-K reveals that the stated hypothetical
risks included the risk of a third-party developer harvesting
Facebook users’ data without their consent. Indeed, the title
of the 10-K subsection in which the risk statements appeared
included the statement that “improper access to or disclosure
of” Facebook’s “user data” could harm the company’s
reputation and business. The subsection itself stated that
“[a]ny failure to prevent or mitigate security breaches and
improper access to or disclosure of our data or user data
could result in the loss or misuse of such data.” Kogan and
Cambridge Analytica’s actions, while not a cyberattack,
hacking, or phishing, fit the bill of Facebook failing to
prevent or mitigate improper access to or disclosure of
Facebook data. The risk of a third-party improperly
accessing Facebook user data through methods other than
hacking, phishing, or any other security breach was
prominent throughout the subsection and covered the
28           AMALGAMATED BANK V. FACEBOOK, INC.

claimed misconduct of Cambridge Analytica. Collapsing
the risks of improper access to and use of Facebook users’
data in the same section as the risk of cyberattacks cannot
rescue the risk statements from being false or materially
misleading.
    Additionally, Facebook’s disclosure that “computer
malware, viruses, social engineering (predominantly spear
phishing attacks), and general hacking have become more
prevalent in our industry, have occurred on our systems in
the past, and will occur on our systems in the future” does
not bring the risk statements within the protection of the
PSLRA’s safe harbor provision for forward-looking
statements. Under the safe harbor, a company is not liable
for a forward-looking statement “accompanied by
meaningful cautionary statements identifying important
factors that could cause actual results to differ materially
from those in the forward-looking statement.” Glazer II, 63
F.4th at 767 (quoting 15 U.S.C. § 78u-5(c)(1)(A)).
     Our recent decision in Weston Family Partnership v.
Twitter, Inc., 29 F.4th 611 (9th Cir. 2022), provides a good
illustration of statements falling within the safe harbor
provision. There, Twitter disclosed its plan to improve the
“stability, performance, and flexibility,” of its mobile app
promotion product gradually “over multiple quarters” and
made clear that the company was “not there yet” in terms of
its stability goals. Id. at 616. At the time, Twitter knew of a
software bug affecting its mobile app promotion product but
did not disclose the bug’s impact. Id. We explained that
Twitter’s disclosure was both forward-looking and
accompanied by the type of “meaningful cautionary
language” necessary to invoke the safe harbor provision
despite the nondisclosure of the software bug. Id. at 623.
            AMALGAMATED BANK V. FACEBOOK, INC.             29

    Here, rather than making cautionary forward-looking
statements, Facebook warned that it could not provide
“absolute security,” that it would continue to be subject to
cyberattacks, and that third parties with inadequate data
security practices could compromise users’ data. Such broad
pronouncements without meaningful acknowledgement of
the known risks of improper data access and disclosure does
not suffice to invoke the safe harbor provision. There is a
big chasm between “absolute security” and sidestepping the
reality of what Facebook allegedly knew about the
compromised data.
    At this stage, the shareholders adequately pleaded falsity
as to the statements warning that misuse of Facebook users’
data could harm Facebook’s business, reputation, and
competitive position and the district court erred by
dismissing the complaint as to those statements. The district
court, however, correctly dismissed the challenged
statements regarding the risk of security breaches and the
risk of the public not perceiving Facebook’s products to be
“useful, reliable, and trustworthy.” Those statements do not
relate to the misuse of Facebook user data by Cambridge
Analytica, and the shareholders do not allege that those risks
had materialized at the time of the 2016 10-K such that they
were false or materially misleading. We leave to the district
court on remand whether the shareholders can satisfy the
other elements of the claims with respect to risk statements.
   B. Cambridge Analytica Investigation Statements
    The challenged Cambridge Analytica investigation
statements include statements made by a Facebook
spokesperson to journalists in March 2017 that Facebook’s
internal investigation into Cambridge Analytica had “not
uncovered anything that suggest[ed] wrongdoing” related to
30           AMALGAMATED BANK V. FACEBOOK, INC.

Cambridge Analytica’s work on the Brexit and Trump
campaigns. The district court held that the shareholders
failed to plead scienter as to the Cambridge Analytica
investigation statements. We agree.
    To plead scienter, the shareholders “must ‘state with
particularity facts giving rise to a strong inference that the
defendant acted with the required state of mind.’” Glazer II,
63 F.4th at 766 (quoting 15 U.S.C. § 78u-4(b)(2)(A)). “A
‘strong inference’ exists ‘if a reasonable person would deem
the inference of scienter cogent and at least as compelling as
any opposing inference one could draw from the facts
alleged.’” Id. (quoting Tellabs, Inc. v. Makor Issues & Rts.,
Ltd., 551 U.S. 308, 324 (2007)). For obvious reasons, an
actionably misleading statement must be made by a
spokesperson “who has actual or apparent authority.” In re
ChinaCast Educ. Corp. Sec. Litig., 809 F.3d 471, 476 (9th
Cir. 2015) (quoting Hollinger v. Titan Cap. Corp., 914 F.2d
1564, 1577 n.28 (9th Cir. 1990)). Thus, “a key inquiry” in
evaluating a motion to dismiss “is whether the complaint
sufficiently alleges scienter attributable to the corporation.”
Id. at 479.
    Of first order is identifying “whether the complaint
adequately alleged that the maker omitted material
information knowingly, intentionally, or with deliberate
recklessness.” In re Alphabet, 1 F.4th at 705. “Deliberate
recklessness is a higher standard than mere recklessness and
requires more than a motive to commit fraud.” Glazer II, 63
F.4th at 765 (quoting Schueneman v. Arena Pharms., Inc.,
840 F.3d 698, 705 (9th Cir. 2016)). Instead, “deliberate
recklessness” involves “an extreme departure from the
standards of ordinary care” that presents “a danger of
misleading buyers or sellers” that “is so obvious” that the
            AMALGAMATED BANK V. FACEBOOK, INC.             31

spokesperson “must have been aware of it.” Id. (quoting
Schueneman, 840 F.3d at 705).
    Simply raising an inference that a company’s executive
“should have” discovered misconduct, not that the executive
actually knew of misconduct, is insufficient “to meet the
stringent scienter pleading requirements of the PSLRA.”
Glazer Cap. Mgmt., LP v. Magistri (Glazer I), 549 F.3d 736,
748–49 (9th Cir. 2008). In Glazer I, the defendant CEO
signed a merger agreement before announcing months later
that an investigation early in the merger-related due
diligence process uncovered possible Foreign Corrupt
Practices Act violations. Id. at 740. The plaintiffs argued
that because the violations were discovered early,
information about the violations “must have been readily
available and therefore known to [the CEO] when he signed
the merger agreement.” Id. at 748. We held that the CEO
learning of the violations shortly after due diligence was not
enough “to create a strong inference of scienter.” Id. The
only strong inference to be drawn was that the CEO should
have known of the possible violations, not that he actually
knew about them, which was insufficient to plead scienter.
Id.
    As in Glazer I, the shareholders pleaded only that the
Facebook spokesperson should have known that Facebook’s
investigation into Cambridge Analytica had uncovered
misconduct, not that the spokesperson actually knew of any
misconduct or even that there was a strong inference of an
“intent to deceive, manipulate, or defraud.” Id. at 742
(quoting Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193
n.12 (1976)). The mere reference by an unidentified
spokesperson to Facebook’s investigation is insufficient to
show that the spokesperson knowingly or intentionally made
false or materially misleading statements about the
32          AMALGAMATED BANK V. FACEBOOK, INC.

investigation. The shareholders’ allegations do not rise to
the level of showing that it was “so obvious” that Facebook’s
investigation had uncovered misconduct related to
Cambridge Analytica’s political work that the spokesperson
“must have been aware of it.” Glazer II, 63 F.4th at 765
(citation omitted).
    Although one might reasonably expect the spokesperson
to have verified the accuracy of the statements before
making them, securities fraud actions are not tort actions,
and “[m]ere negligence — even head-scratching mistakes —
does not amount to fraud.” Prodanova v. H.C. Wainwright
& Co., 993 F.3d 1097, 1103 (9th Cir. 2021). Nothing in the
complaint suggests that the Cambridge Analytica
investigation statements involved an extreme departure from
the standards of ordinary care, and the shareholders thus fall
short of raising a strong inference that the spokesperson
acted with the necessary malintent. In light of the absence
of scienter, we need not assess the alleged falsity of the
statements. We affirm the district court’s dismissal of the
allegations and agree that the shareholders failed to plead
scienter as to the Cambridge Analytica investigation
statements.
     C. User Control Statements
    Throughout the class period, Facebook made several
statements about users’ control over their personal data. The
statements assured Facebook users that they had control over
their information and content on Facebook and that
Facebook’s priorities of transparency and user control
aligned with the GDPR framework.              The following
Facebook statements are illustrative: “People can control the
audience for their posts and the apps that can receive their
data,” “[e]very person gets to control who gets to see their
            AMALGAMATED BANK V. FACEBOOK, INC.             33

content,” and “[w]e respected the privacy settings that
people had in place.” The shareholders assert that
Facebook’s stock price dropped after reporting on the
Cambridge Analytica scandal in March 2018 and
Facebook’s whitelisting policy in June 2018 revealed the
falsity of Facebook’s statements about users’ control over
their data. They allege that the stock price drops caused
them to suffer economic loss.
    Pleading loss causation requires a showing that the
“share price fell significantly after the truth became known.”
In re Oracle Corp. Sec. Litig., 627 F.3d 376, 392 (9th Cir.
2010) (quoting Dura Pharms., Inc. v. Broudo, 544 U.S. 336,
347 (2005)). “[L]oss causation is simply a variant of
proximate cause.” Lloyd v. CVB Fin. Corp., 811 F.3d 1200,
1210 (9th Cir. 2016). The shareholders must show that
Facebook’s “misstatement, as opposed to some other fact,
foreseeably caused the plaintiff’s loss.”            Id.   The
shareholders’ “burden of pleading loss causation is typically
satisfied by allegations that the defendant revealed the truth
through ‘corrective disclosures’ which ‘caused the
company’s stock price to drop and investors to lose money.’”
Id. at 1209 (quoting Halliburton Co. v. Erica P. John Fund,
Inc., 573 U.S. 258, 264 (2014)).
    Neither the Federal Rules of Civil Procedure nor the
federal securities laws “impose any special further
requirement in respect to the pleading of proximate
causation or economic loss” beyond the “short and plain
statement of the claim” required by Rule 8. Dura Pharms.,
544 U.S. at 346. At the pleading stage, it is generally
inappropriate to dismiss for failure to establish loss
causation. In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1057
(9th Cir. 2008) (agreeing that loss causation “is a matter of
proof at trial and not to be decided on a Rule 12(b)(6) motion
34           AMALGAMATED BANK V. FACEBOOK, INC.

to dismiss” (citation omitted)). Put differently, if a
complaint proffers sufficient facts “to raise a reasonable
expectation that discovery will reveal evidence” of loss
causation, the allegations therein should survive a motion to
dismiss. Id. (quoting Bell Atl. Corp. v. Twombly, 550 U.S.
544, 556 (2007)).
    As an initial matter, the district court correctly held that
the shareholders failed to plead sufficiently that Facebook’s
statements about the company’s commitment to
transparency and control in line with the GDPR framework
violated Section 10(b) and Rule 10b-5. As Facebook notes,
those statements “merely reiterated Facebook’s ongoing
commitment to ‘transparency and control’” rather than
assuring users they controlled their Facebook data, and thus
were not false when they were made. Further, the June 2018
whitelisting revelation, which was unaccompanied by a
stock price drop, is not actionable. See Lloyd, 811 F.3d at
1210. We affirm the dismissal of the statements related to
Facebook’s goals of transparency and control, and the June
2018 whitelisting revelation as a standalone claim.
However, we reverse the dismissal as to other statements
related to the stock drops.
     1. March 2018 Stock Price Drop
    Most of the challenged user control statements occurred
after the March 16, 2018, revelation about Cambridge
Analytica and thus cannot be pegged to the March 2018
stock price drop. However, the user control statements that
preceded the revelation are relevant here, and the
shareholders adequately pleaded loss causation as to the
statements assuring users that they control their content and
information on the platform.
            AMALGAMATED BANK V. FACEBOOK, INC.             35

   The shareholders adequately pleaded that the March
2018 revelation about Cambridge Analytica was the first
time Facebook investors were alerted that Facebook users
did not have complete control over their own data. As
previously discussed, the 2015 and 2016 articles in The
Guardian and The Washington Post did not reveal that
Cambridge Analytica had misused Facebook users’ data.
Facebook’s public response to the Guardian article in 2015
was that it was “carefully investigating” Cambridge
Analytica.
    The shareholders also adequately allege that Facebook
did not make public statements about the Cambridge
Analytica issue between 2015 and 2018. Before the March
2018 news broke, reasonable investors would not have
known that Cambridge Analytica had improperly accessed
Facebook users’ data such that users did not have control
over their personal information on the platform. In the week
that followed the revelation, Facebook’s stock dropped
nearly 18%, representing a loss of over $100 billion in
market capitalization and plausibly causing economic loss
for the shareholders.
    The Cambridge Analytica revelation thus satisfies the
pleading criteria for a corrective disclosure, which requires
allegations that “the defendant’s fraud was ‘revealed to the
market and caused the resulting loss[].’” Grigsby v. BofI
Holding, Inc., 979 F.3d 1198, 1205 (9th Cir. 2020) (quoting
Loos v. Immersion Corp., 762 F.3d 880, 887 (9th Cir. 2014)).
A disclosure is not corrective if the information comes
entirely from public sources “of which the stock market was
presumed to be aware.” Id. (quoting Loos, 762 F.3d at 889).
Here, because the 2015 and 2016 articles about Cambridge
Analytica did not provide investors the necessary
information to learn that Facebook users did not control their
36          AMALGAMATED BANK V. FACEBOOK, INC.

data, the shareholders adequately alleged that the March
2018 revelation was a corrective disclosure as to Facebook’s
statements that users control their data on the platform. We
reverse the district court’s dismissal of Facebook’s
statements about users controlling their own Facebook data
that preceded the March 16, 2018, revelation.
     2. July 2018 Stock Price Drop
    The July 2018 drop occurred immediately after
Facebook’s disappointing earnings report and was tied to
approximately $100 billion of shareholder value loss. At the
time, it was the largest single-day stock price drop in U.S.
history. The question is whether the shareholders adequately
pleaded loss causation as to Facebook’s user control
statements predating the March 16, 2018, Cambridge
Analytica revelation and the June 3, 2018, whitelisting
revelation, even though the stock drop did not occur until
July 25, 2018.
    Because loss causation requires that the defendant’s
misstatement, rather than some other fact, foreseeably
caused the plaintiff’s loss, establishing loss causation
requires more than “an earnings miss” or the market’s
reaction to a company’s “poor financial health generally.”
In re Oracle, 627 F.3d at 392. Simply pleading “that the
market reacted to the purported ‘impact’ of the alleged
fraud—the earnings miss—rather than to the fraudulent acts
themselves” is not sufficient. Id.
    Illustrative of a disconnect between earnings and
causation is In re Oracle, where the shareholders argued that
Oracle’s misstatements regarding the “quality and success”
of its Suite 11i product, rather than its struggling financial
health, caused the company’s stock price to drop. Id. at 392–
93. The shareholders posited that because the stock price
             AMALGAMATED BANK V. FACEBOOK, INC.               37

drop occurred immediately after the truth about Suite 11i
became public, the revelation of the truth must have caused
the price drop. Id. In affirming summary judgment for
Oracle, we explained that the “overwhelming evidence
produced during discovery indicate[d] the market
understood Oracle’s earnings miss to be a result of several
deals lost in the final weeks of the quarter due to customer
concern over the declining economy,” not the alleged Suite
11i fraud. Id. at 393.
    Another wrinkle here is whether loss causation
allegations can survive a motion to dismiss even when the
stock price drop did not immediately follow the revelation
of the misstatement. In In re Gilead, the market learned in
August 2003 that Gilead had aggressively marketed a drug
by claiming that the company had “carefully complied with
federal and state regulations” when, in fact, a warning letter
from the Food and Drug Administration had informed
Gilead that its marketing claims were unlawful. 536 F.3d at
1051. Gilead’s stock price did not drop until October 2003,
following a press release revealing “less-than-expected
revenues.” Id. at 1054, 1058. Despite the time gap between
the revelation and the stock price drop, the shareholders
claimed that Gilead’s misrepresentations caused its stock
price to inflate, and the subsequent disappointing revenue
performance and stock price drop sufficed to plead loss
causation. Id. at 1056.
    Acknowledging the time gap, we held that the
shareholders adequately pleaded loss causation and
reiterated that there is no “bright-line rule requiring an
immediate market reaction” after a revelation because “[t]he
market is subject to distortions that prevent the ideal of a free
and open public market from occurring.” Id. at 1057–58
(alteration in original) (citation omitted). Accordingly, the
38           AMALGAMATED BANK V. FACEBOOK, INC.

shareholders plausibly alleged that Gilead’s stock price drop
occurred immediately after the company revealed its
disappointing revenue numbers, and the drop was caused by
lower demand resulting from the warning letters. Id. As we
explained, it was reasonable for the public to fail to
appreciate the significance of the warning letters until
learning of Gilead’s disappointing revenue posting. Id.
Aligning ourselves with the Second and Third Circuits, we
concluded that “loss causation ‘is a matter of proof at trial’”
so “it is normally inappropriate to rule on loss causation at
the pleading stage.” Id. at 1057 (quoting Emergent Cap. Inv.
Mgmt., LLC v. Stonepath Grp., Inc., 343 F.3d 189, 197 (2d
Cir. 2003)); see also McCabe v. Ernst & Young, LLP, 494
F.3d 418, 427 n.4 (3d Cir. 2007). Because the shareholders
pleaded sufficient facts to raise a reasonable expectation that
discovery would reveal evidence of the warning letter’s
“effect on demand,” the loss causation claim survived
Gilead’s motion to dismiss. In re Gilead, 536 F.3d at 1058.
    For Facebook’s July 2018 stock price drop to be
actionable, it must be because Facebook’s earnings report
revealed new information to the market; specifically, that
Facebook’s Q2 earnings call in July 2018 allowed the public
to “appreciate [the] significance” of the Cambridge
Analytica and whitelisting scandals. Id. The disappointing
Q2 earnings performance alone cannot satisfy the
shareholders’ burden of pleading loss causation.
    Here, as in In re Gilead, the shareholders adequately
pleaded that the Cambridge Analytica and whitelisting
revelations, not any other factor, caused the July 2018 stock
price drop. Although the stock drop occurred nearly two
months after the whitelisting revelation, the shareholders
sufficiently allege that the drop was caused by “dramatically
lowered user engagement, substantially decreased
             AMALGAMATED BANK V. FACEBOOK, INC.             39

advertising revenue and earnings, and reduced growth
expectations going forward” on account of the Cambridge
Analytica and whitelisting scandals. The shareholders
further detail how the GDPR rollout had little impact on the
July 2018 earnings report, and how investors and market
analysts explicitly connected the revenue drop to the
scandals. These allegations suffice to plead “a causal
relationship” between the Cambridge Analytica and
whitelisting revelations and the dramatic drop in Facebook’s
stock price. Id. at 1057. We emphasize that this case is at
the very early motion to dismiss stage, that the shareholders
have raised “a reasonable expectation that discovery will
reveal evidence” of loss causation, id. (quoting Twombly,
550 U.S. at 556), and that discovery and further proceedings
are necessary to illuminate the issues surrounding loss
causation.
    Our dissenting colleague would affirm the district
court’s dismissal of the user control statements as they relate
to the Cambridge Analytica revelation. Stated differently,
the dissent would hold that only the July 2018 stock price
drop was actionable, and only as to the whitelisting
revelation, not the Cambridge Analytica revelation.
    In support, the dissent contends that the 2018
“Cambridge Analytica disclosures did not make the user
control statements materially false,” because “Cambridge
Analytica’s lies to Facebook and its continued violation of
Facebook’s privacy policies do not mean that Facebook’s
privacy protections do not actually exist.” But the question
is not whether and when Cambridge Analytica lied to
Facebook, but whether and when Facebook learned of
Cambridge Analytica’s deception. It is true that in January
2016, Cambridge Analytica agreed to delete the personality
score data it harvested from Facebook. But recall that the
40          AMALGAMATED BANK V. FACEBOOK, INC.

shareholders pleaded that Facebook had reason to know in
June 2016—only five months later—that Cambridge
Analytica had received much more information from
Facebook than just the personality score data and that
Cambridge Analytica was still using a model based on the
data in violation of Facebook’s policies. The shareholders
further allege that when Facebook found out, it tried to
require Cambridge Analytica’s CEO to certify that all data
harvested from the personality quiz was deleted, but the
CEO refused to do so. Thus, the shareholders pleaded with
particularity that Facebook knew Cambridge Analytica did
not delete all the data it had improperly accessed.
    We agree with the dissent that “a supposed bad actor
violating Facebook’s privacy controls to improperly access
user data doesn’t make the company’s statements about its
policies misleading.” But labeling Cambridge Analytica as
a “bad actor” is not the issue. It was not Cambridge
Analytica’s deception that made Facebook’s user control
statements misleading. Rather, it was that Facebook knew
Cambridge Analytica retained access to improperly
collected user data after Cambridge Analytica certified that
it had deleted the personality score data, and Facebook
nonetheless falsely represented to users that they had control
over their data on the platform. The shareholders adequately
pleaded loss causation as to the stock price drops that
occurred after the Cambridge Analytica revelation in March
and July 2018. Accordingly, we reverse the district court’s
dismissal of Facebook’s statements regarding data control
that predated the June 3, 2018, whitelisting revelation.
                     III. CONCLUSION
   We affirm in part and reverse in part as to dismissal
based on the risk statements and user control statements, and
             AMALGAMATED BANK V. FACEBOOK, INC.               41

we affirm as to dismissal based on the Cambridge Analytica
investigation statements. Specifically, we affirm the
dismissal of the statements in ¶¶ 503–05, 530, 533, and 537–
38 of the Third Amended Complaint, reverse the district
court’s dismissal of the statements in ¶¶ 501–02, 507–14,
519, and 525, and remand for further proceedings. Each
party shall bear its own costs.
  AFFIRMED IN PART, REVERSED IN PART, AND
REMANDED IN PART.

BUMATAY, J., concurring in part and dissenting in part:

    At issue here are three general categories of alleged false
statements: (1) statements about Facebook’s risk factors, (2)
statements about Facebook’s investigation of Cambridge
Analytica, and (3) statements about Facebook users’ control
over their data. I join the majority in holding that the
plaintiff Shareholders failed to sufficiently allege a falsity in
the second category—Facebook’s Cambridge Analytica
investigation statements. I also join the majority in holding
that Shareholders did allege a falsity and loss from the third
category of user control statements—but only as those
statements relate to Facebook’s practice of “whitelisting.”
    So I disagree with the majority on two fundamental
points. First, Shareholders failed to sufficiently allege that
Facebook’s risk factor statements in its public filings were
fraudulent.     Second, Shareholders didn’t show that
Facebook’s user control statements were false based on the
Cambridge Analytica revelations. I briefly set out my
disagreement below.
42          AMALGAMATED BANK V. FACEBOOK, INC.

                              I.
                  Risk Factor Statements
    Federal securities law creates no “affirmative duty to
disclose any and all material information.” Matrixx
Initiatives, Inc. v. Siracusano, 563 U.S. 27, 44 (2011).
Rather, companies must disclose information “only when
necessary ‘to make . . . statements made, in light of the
circumstances under which they were made, not
misleading.’” Id. (quoting 17 CFR § 240.10b–5(b)). Thus,
companies “can control what they have to disclose . . . by
controlling what they say to the market.” Id. at 45.
     Indeed, companies have no “obligation to offer an
instantaneous update of every internal” or “fleeting”
development. Weston Fam. P’ship LLLP v. Twitter, Inc., 29
F.4th 611, 620 (9th Cir. 2022). Instead, a “company must
disclose a negative internal development only if its omission
would make other statements materially misleading.” Id.
Put differently, statements and omissions are actionable only
if they “directly contradict what the defendant knew at that
time,” Khoja v. Orexigen Therapeutics, Inc., 899 F.3d 988,
1008 (9th Cir. 2018), or “create an impression of a state of
affairs that differs in a material way from the one that
actually exists,” Brody v. Transitional Hosps. Corp., 280
F.3d 997, 1006 (9th Cir. 2002). In assessing this question,
we look to the “total mix” of information available to the
reasonable investor and whether the alleged misstatement
“significantly altered” the decision-making of the reasonable
investor. Retail Wholesale & Dep’t Store Union Loc. 338
Ret. Fund v. Hewlett-Packard Co., 845 F.3d 1268, 1274 (9th
Cir. 2017) (simplified); see also In re Syntex Corp. Sec.
Litig., 95 F.3d 922, 929 (9th Cir. 1996) (requiring evaluation
            AMALGAMATED BANK V. FACEBOOK, INC.            43

of the “statement in full and in context at the time it was
made”).
    Shareholders’ allegations stem from Facebook’s 2016
SEC Form 10-K “Risk Factors” statements, dated February
3, 2017. Facebook made these statements in the context of
the following bolded headline:

       •   “Security breaches and improper
           access to or disclosure of our data or
           user data, or other hacking and
           phishing attacks on our systems, could
           harm our reputation and adversely
           affect our business.”

Under that header, Facebook gave these warnings:

       •   “Any failure to prevent or mitigate
           security breaches and improper access to
           or disclosure of our data or user data
           could result in the loss or misuse of such
           data, which could harm our business and
           reputation and diminish our competitive
           position.”
       •   “We provide limited information to . . .
           third parties based on the scope of
           services provided to us. However, if these
           third parties or developers fail to adopt or
           adhere to adequate data security
           practices . . . our data or our users’ data
44          AMALGAMATED BANK V. FACEBOOK, INC.

           may be improperly accessed, used, or
           disclosed.”

    Shareholders argue—and the majority agrees—that all
three of these statements are misleading because, by
February 2017, Facebook already knew that Cambridge
Analytica had gained improper access to the data of tens of
millions of Facebook users. According to the majority, this
means that the statements directly contradicted what the
company knew when it filed its 10-K.
    There’s a problem with this analysis. Even if Facebook
knew about the full extent of the so-called Cambridge
Analytica scandal at this point, none of this makes the risk
factor statements false. Recall the facts of the scandal. In
2015, Facebook became aware that Cambridge Analytica—
through a consulting academic—had developed a
personality quiz that harvested data from more than thirty
million Facebook users, often without the users’ consent.
This quiz gave Cambridge Analytica access to Facebook
users’ name, gender, location, birthdate, “likes,” and
“friends,” which made it possible to develop an algorithm to
sort Facebook users according to personality traits.
Cambridge Analytica then allegedly used that algorithm to
help political campaigns.
    Regardless of the severity of Cambridge Analytica’s
alleged misconduct, a careful reading of the 10-K statements
shows that these risk factor statements warn about harm to
Facebook’s “business” and “reputation” that “could”
materialize based on improper access to Facebook users’
data—not about the occurrence or non-occurrence of data
breaches. How do we know that? Well, the statements say
so. The first and second statements expressly advise that
             AMALGAMATED BANK V. FACEBOOK, INC.               45

improper breaches “could harm” Facebook’s “business” and
“reputation.”
    And although the third statement does not expressly
mention business and reputational harm, we know that is its
focus for two reasons. First, Facebook reported the
statement under the bolded section about breaches and
improper actions “could harm [Facebook’s] reputation
and adversely affect our business.” Second, the very next
sentence places that statement into more context: “Affected
users or government authorities could initiate legal or
regulatory actions against us in connection with any security
breaches or improper disclosure of data, which could cause
us to incur significant expense and liability or result in orders
or consent decrees forcing us to modify our business
practices.”
     Taken together, Facebook’s risk factor statements warn
about harm to its “reputation” and “business” that may come
to light if the public or the government learns about improper
access to its data. These statements do not represent that
Facebook was free from significant breaches at the time of
the filing. And if a reasonable investor thought so based on
Facebook’s 10-K statements, that “reasonable” investor
wasn’t acting so reasonably. Indeed, within the same
section, Facebook warned that “computer malware, viruses,
social engineering (predominantly spear phishing attacks),
and general hacking have become more prevalent in our
industry, have occurred on our systems in the past, and will
occur on our systems in the future.” Facebook expressly
advised that it experienced previous attempts to swipe its
data and that it would continue to face such threats. Beyond
Facebook’s own statements, much about the Cambridge
Analytica scandal was already public. In a December 2015
article, The Guardian reported that Cambridge Analytica
46           AMALGAMATED BANK V. FACEBOOK, INC.

had harvested data from “tens of millions” of Facebook users
“without their permission.” 1 These are the same facts
Shareholders use to claim Facebook deceived the public with
more than two years later.
    So, on their face, none of the 10-K risk factor statements
are false or misleading. The statements advise that improper
access to data could harm Facebook’s reputation and
business. And Shareholders have not sufficiently alleged
that Facebook knew its reputation and business were already
harmed at the time of the filing of the 10-K. Nor do they
allege that Facebook was aware of government entities or
users launching regulatory or legal actions based on the
Cambridge Analytica scandal in February 2017.
    While acknowledging these shortcomings in the
Shareholders’ complaint, the majority takes the surprisingly
broad view that it’s irrelevant that “Facebook did not know
whether its reputation was . . . harmed” at the time of the 10-
K filing. Maj. Op. 25. The majority instead asserts that it’s
enough that a breach had occurred, never mind whether the
breach led to a discernible effect on Facebook’s reputation
or business at the time. Id. The majority goes so far as to
say that a fraud occurs even if the harm caused by the breach
was completely “unknown” to Facebook. Id. But if it was
“unknown” whether the breach led to reputational or
business harm, it’s hard to see how the risk factor statements
were untrue. Stating that harm could result from a breach is
not falsified by some “unknown” possibility of harm from a
breach. In other words, Facebook’s risk factor statements

1
  See Harry Davies, Ted Cruz Using Firm that Harvested Data on
Millions of Unwitting Facebook Users, The Guardian (Dec. 11, 2015),
https://www.theguardian.com/us-news/2015/dec/11/senator-ted-cruz-
president-campaign-facebook-user-data.
               AMALGAMATED BANK V. FACEBOOK, INC.                       47

could not “directly contradict what the defendant knew at
that time” if any harm was unknown to Facebook at the time.
Khoja, 899 F.3d at 1008. 2
    And In re Alphabet, Inc. Securities Litigation, 1 F.4th
687 (9th Cir. 2021), doesn’t transform every risk statement
into a false or misleading statement if a risk later comes to
fruition. Nor does it create a new requirement that a
company disclose every bad thing that ever happened to it.
In that case, Alphabet stated in two quarterly disclosure
forms that certain risks “could adversely affect our business,
financial condition, [and] results of operations,” but that
“[t]here have been no material changes to our risk factors
since our [last] Annual Report on Form 10-K.” 1 F.4th at
696 (simplified). What Alphabet didn’t disclose is that,
before the reports came out, its internal Google investigators
had discovered a software glitch in one of its programs that
allowed third parties to collect users’ private data. Id. at 695.
Google’s legal and policy staff quickly recognized the
problem and warned in an internal memorandum that these
security issues would likely trigger an immediate regulatory
response and cause its senior executives to testify before
Congress. Id. at 696. When news inevitably broke six

2
   Given the majority’s analysis of these statements, it’s difficult to see
how Shareholders can ever satisfy the scienter requirement. Indeed, “[a]
complaint will survive . . . only if a reasonable person would deem the
inference of scienter cogent and at least as compelling as any opposing
inference one could draw from the facts alleged.” Tellabs, Inc. v. Makor
Issues & Rights, Ltd., 551 U.S. 308, 324 (2007). Such a strong inference
requires an “intent to deceive, manipulate, or defraud,” or “deliberate
recklessness”—which is “an extreme departure from the standards of
ordinary care.” Schueneman v. Arena Pharmaceuticals, Inc., 840 F.3d
698, 705 (9th Cir. 2016). If the harm from Cambridge Analytica’s
breach was unknown at the time of the filing of the 10-K, it’s doubtful
this standard can be met.
48           AMALGAMATED BANK V. FACEBOOK, INC.

months later, Alphabet’s shares plummeted in value and,
sure enough, there were calls for government investigation.
Id. at 697. We concluded that “[r]isk disclosures that speak
entirely of as-yet-unrealized risks and contingencies and do
not alert the reader that some of these risks may already have
come to fruition can mislead reasonable investors.” Id. at
703 (simplified). In Alphabet’s case, the “warning in each
[quarterly report] of risks that ‘could’ or ‘may’ occur [was]
misleading to a reasonable investor [because] Alphabet
knew that those risks had materialized.” Id. at 704.
    Contrary to the majority’s assertion, this case is nothing
like Alphabet. In Alphabet, the company knew a risk had
come to fruition—set out as clear as day in an internal
company memo—that a data bug would cause it greater
regulatory scrutiny. Id. at 696. Rather than disclose its
assessment, Alphabet chose to bury it and even stated that
no material changes existed in its risk factors. Id. at 696–97,
703. Here, Facebook might have known of breaches of its
data—even potentially serious breaches—when it gave its
risk statements, but Shareholders don’t allege that Facebook
knew that those breaches would lead to immediate harm to
its business or reputation. As the majority concedes, the
harm from Cambridge Analytica’s breach of Facebook’s
policies was “unknown” at the time of the 10-K filing. See
Maj. Op. 25. Nor did Facebook lull investors into
complacency by suggesting that nothing had changed on its
risks front. These facts make all the difference here. Cf.
Weston, 29 F.4th at 621 (dismissing fraud claims alleging
that Twitter’s risk warning statement—that its “product and
services may contain undetected software errors, which
could harm our business and operating results”—was
misleading because the risk had materialized by then).
            AMALGAMATED BANK V. FACEBOOK, INC.            49

    Because Facebook did not present false or misleading
risk statements, and Alphabet did not modify a common-
sense understanding of truthfulness and disclosure, we
should have affirmed the dismissal of this claim.
                             II.
                User Control Statements
    The next category of alleged falsehoods concerns
Facebook’s representations that users control their data and
information. During the relevant period for this lawsuit,
Facebook and its executives made various statements
emphasizing users’ control over the data they shared with
Facebook, such as—

       •   “You own all of the content and
           information you post on Facebook, and
           you can control how it is shared through
           your privacy and application settings.”
           Facebook’s Statement of Rights and
           Responsibilities web page, ~ January 30,
           2015 to May 25, 2018.
       •   “[W]hen you share on Facebook you
           need to know . . . . No one is going to get
           your data that shouldn’t have it. That
           we’re not going to make money in ways
           that you would feel uncomfortable with
           off your data. And that you’re controlling
           who you share with . . . . Privacy for us is
           making sure that you feel secure, sharing
           on Facebook.” Sheryl Sandberg, Axios
           interview, October 12, 2017.
50           AMALGAMATED BANK V. FACEBOOK, INC.

       •   “Our apps have long been focused on
           giving people transparency and control . .
           . .” Sheryl Sandberg, Facebook Gather
           Conference, January 23, 2018.

                              A.
    Shareholders have adequately shown that these
statements were misleading based on the allegation that
Facebook “whitelisted” third parties. According to the
Shareholders, at the same time these statements were made,
Facebook continued to allow certain “whitelisted” third
parties, mostly app developers and device manufacturers, to
continue to access data against a user’s wishes. Shareholders
allege that Facebook overrode user privacy settings to allow
these third parties access to the data of, not only the
Facebook user, but that of the user’s friends as well. In fact,
Facebook paid the Federal Trade Commission $5 billion to
settle charges stemming from the “whitelisting” allegations.
    These facts are enough to plead that the statements were
false—the only question is whether the statements caused
Shareholders any loss. See Grigsby v. BofI Holding, Inc.,
979 F.3d 1198, 1204 (9th Cir. 2020) (explaining that
“investors must demonstrate that the defendant’s deceptive
conduct caused their claimed economic loss”) (simplified).
Facebook’s “whitelisting” program became public on June
3, 2018, when the New York Times reported that Facebook
shared users’ and their friends’ data with multiple
“whitelisted” companies. When it comes to false statements,
a plaintiff can usually show loss causation by pointing to an
immediate stock drop after the falsity was uncovered. Id. at
1205 (“A plaintiff can satisfy the loss-causation pleading
burden by alleging that a corrective disclosure revealed the
truth of a defendant’s misrepresentation and thereby caused
             AMALGAMATED BANK V. FACEBOOK, INC.             51

the company’s stock price to drop and investors to lose
money.”) (simplified). The wrinkle here is that Facebook’s
stock didn’t drop immediately after the whitelisting became
public. It wasn’t until several weeks later—July 26, 2018,
the day after Facebook announced slower growth than
expected—that Facebook’s stock dropped by almost 19%.
Facebook contends that this temporal gap proves that its
misleading user control statements didn’t cause
Shareholders any loss.
    But sometimes it takes time for the full scope of a loss
from a misrepresentation to materialize. As In re Gilead
Sciences Securities Litigation, 536 F.3d 1049, 1058 (9th Cir.
2008) recognized, a “limited temporal gap between the time
a misrepresentation is publicly revealed and the subsequent
decline in stock value does not render a plaintiff’s theory of
loss causation per se implausible.” Indeed, in that case, three
months had passed between the disclosure of Gilead’s
alleged deceptive marketing practices and the stock drop
after Gilead missed revenue targets. Id. at 1057–58. Despite
this gap, we concluded the plaintiffs had plausibly alleged
that the less-than-expected revenue was caused by lower
end-user demand, which, in turn, was caused by disclosing
the company’s deceptive marketing. Id. at 1058. Thus, an
“immediate market reaction” is not necessary when the
market might “fail[] to appreciate [the] significance” of a
disclosure right away. Id. at 1057–58.
    So, we shouldn’t be too quick to dismiss a claim based
on a delay in the manifestation of loss. In my view, it’s
plausible that the whitelisting revelation made on June 18
caused user engagement and advertising revenue to
diminish, which contributed to the lower earnings
announced on July 25 and the immediate stock drop.
Facebook counters that the European Union’s new privacy
52          AMALGAMATED BANK V. FACEBOOK, INC.

regulations—not the whitelisting revelation—caused the
lower July 25 earnings. That might be right. But, at the very
least, Shareholders deserve some discovery to prove their
theory of loss causation.
                             B.
    But the analysis of the user control statement must be
different when it comes to the Cambridge Analytica scandal.
Shareholders allege—and the majority agrees—that new
revelations about Cambridge Analytica from March 2018
also proved Facebook’s user control statements were false.
As a reminder, in late 2015, Facebook discovered that
Cambridge Analytica obtained personality score data
harvested from Facebook data and demanded that
Cambridge Analytica delete all such data. In response,
Cambridge Analytica certified to Facebook that it would
delete the data. On March 16, 2018, Facebook announced
that it had received reports from the media that Cambridge
Analytica did not destroy the data and that it was suspending
Cambridge Analytica from the platform. News reports then
confirmed that Cambridge Analytica continued to possess
and use harvested data from Facebook. Within a week of
these disclosures, Facebook’s shares dropped nearly 18%.
Shareholders contend that these revelations prove the falsity
of Facebook’s user control statements.
    These Cambridge Analytica disclosures did not make the
user control statements materially false. To prevail,
Shareholders must show that the Facebook user control
statements “affirmatively create[d] an impression of a state
of affairs that differ[ed] in a material way from the one that
actually exist[ed.]” Brody, 280 F.3d at 1006. But
Cambridge Analytica’s lies to Facebook and its continued
violation of Facebook’s privacy policies do not mean that
             AMALGAMATED BANK V. FACEBOOK, INC.             53

Facebook’s privacy protections do not actually exist. Aside
from the whitelisting issue described above, Facebook
seemingly described its privacy policies accurately.
Cambridge Analytica’s violation of those policies doesn’t
falsify them.
    Imagine a bank. Say that the bank announces a range of
security measures to protect its customers’ money. Then
consider if a bank robber defeats those measures, breaks in,
and ultimately steals a bag of cash. Would anyone say that
the bank lied about its security measures? Clearly, no. Here,
a supposed bad actor violating Facebook’s privacy controls
to improperly access user data doesn’t make the company’s
statements about its policies misleading.
    What makes our ruling all the more odd is that much of
the Cambridge Analytica scandal was already public by the
time of the user control statements. The first article about it
dropped in 2015.       So it’s hard to see how this new
“revelation” added to the “total mix” of information
available to Shareholders or “significantly altered” their
decision-making. See Retail Wholesale & Dep’t Store
Union Loc. 338 Ret. Fund, 845 F.3d at 1274. We thus should
have limited Facebook’s liability for the user control
statements to the “whitelisting” allegations.
                             III.
   For these reasons, I respectfully dissent from Part II.A of
the majority opinion, from Part II.C as it relates to
Cambridge Analytica, and from Part III.