The internal studies that show Facebook has known about its harms to children, and its role in inciting violence and health misinformation, worry investors like Julie Goodridge, a portfolio manager for NorthStar Asset Management. She, along with the New York State Comptroller’s Office and other investment funds, filed a motion for the next shareholder meeting, calling for the removal of Mr. Zuckerberg’s power as majority voting shareholder.
“We care very much about bad behavior, and these are the kind of things that we believe hurt the company in the long run,” Ms. Goodridge said.
Gary Gensler, who took over the S.E.C. in April, has said the agency needs to step up enforcement when companies don’t adequately disclose information that could influence investors. In his first months in office, the agency appears to be broadening its scope to encompass how corporate decisions have broader social, environmental and labor impacts — the kinds of decisions that are a priority for some investors. It recently opened an investigation into claims that Activision Blizzard, the gaming company, failed to disclose sexual harassment accusations to investors.
“Traditionally, securities-fraud laws had been about stopping false or misleading statements on balance sheets — that would be the prosaic case,” said Kevin S. Haeberle, a professor at William & Mary Law School. “Now there is a political approach and movement to use securities law more broadly.”
Facebook is expected to fight any action taken by the S.E.C. The company has amassed an army of litigators from top multinational law firms in Washington, including experts in securities, antitrust, consumer protection and civil rights law. And it now has years of experience in fighting litigation by regulators, including the Federal Trade Commission and state attorneys general.
With a market value near $1 trillion, Facebook has been able to absorb regulatory penalties without much scar tissue, including a $100 million settlement with the S.E.C. for failing to disclose data privacy risks and a record $5 billion settlement with the F.T.C., both in 2019.
The onus will now be on the securities regulators to take the documents provided by Ms. Haugen and show clear violations of corporate governance laws. Without proof of intent and recklessness, Facebook will have grounds to dismiss a case, said Donald Langevoort, a securities law expert at Georgetown Law School.
“The tough part is to prove if they really misrepresented information or just framed it as opinion or puffery,” he said.
Reporting was contributed by Mike Isaac, Sheera Frenkel, Ryan Mac and Davey Alba.
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