Meta Likely to Avoid Liability in WhatsApp Investment Scam Cases

In recent legal developments, a federal judge has signaled that jurisdictional complexities might prevent two lawsuits from moving forward against Meta, the parent company of WhatsApp. These lawsuits accuse Meta of facilitating investment scams through fraudulent advertisements that misled users into participating in schemes orchestrated by criminal networks, primarily based in China.

U.S. District Judge William H. Orrick III expressed a strong inclination to dismiss the lawsuits, aligning his reasoning with a previous ruling from Chief U.S. District Judge Richard Seeborg. Seeborg had dismissed a similar case, citing the Securities Litigation Uniform Standards Act (SLUSA), which mandates that certain securities class actions claiming misrepresentation or omission of material fact must be heard in federal court and are subject to dismissal.

Judge Orrick noted that the plaintiffs' allegations fit within SLUSA's framework, stating, "The 'in connection with' element is met — injuries occurred from the devalued stock purchased in the pump-and-dump scheme." This ruling suggests that the court may not have jurisdiction to hear these cases, leading to potential dismissal without prejudice.

The plaintiffs in these lawsuits claim to have been victims of identical fraudulent schemes carried out on Meta's platforms. They assert that scammers utilized Meta to target unsuspecting users with numerous ads promoting investment opportunities linked to celebrities and reputed investors. Once users were drawn in by these ads, they were moved to Meta-owned WhatsApp groups where the scammers posed as financial advisors, urging them to buy shares in specific stocks that the scammers already held in large quantities.

This deceptive practice, commonly known as a pump-and-dump scheme, involves artificially inflating the stock prices before selling off shares at those inflated rates, leaving investors with significant losses once the stock value plummets. In these cases, the plaintiffs allege that the scammers orchestrated such schemes involving Jayud Global Logistics Ltd. (JGL) and Ostin Technology Group Co., Ltd. (OST), leading to estimated losses of $500 million and $110 million, respectively, for the affected investors.

During the recent hearing, Andrew Robertson, the attorney representing the plaintiffs, contended that Meta's role in these scams should not subject the lawsuits to SLUSA. He argued that Meta was only involved at the onset, when victims were lured by misleading ads, and later during the misrepresentations that compelled them to purchase securities. He emphasized that while Meta's advertising facilitated the scams, it does not inherently make the company subject to federal securities law.

Robertson also raised concerns about Meta's adherence to its terms of service, suggesting that the company failed to enforce its own guidelines regarding targeted advertising, which ultimately left users vulnerable to scams. However, he aimed to clarify that the breach of contract claims should be viewed separately from the investment scam itself.

In contrast, Meta's attorney, Sonal Mehta, countered that the plaintiffs have consistently depicted a "fully integrated scheme," arguing that the ads were central to the scams' execution. She noted that if the ads contributed to the material decision to purchase the securities, then SLUSA's provisions would apply.

Mehta also reiterated a prior ruling that indicated Meta's terms of service lack binding language that would compel the company to act against fraudulent activity, further supporting the argument for dismissal of the claims. As Judge Orrick prepares to issue a ruling in the near future, the outcome of these lawsuits could significantly impact the legal landscape surrounding digital advertising and liability.