Mark Zuckerberg and other Meta directors agreed to a $190 million settlement to settle accusations that they failed to correct repeated violations of Facebook users’ privacy and engineered a deal to protect the billionaire CEO from personal liability, court documents show.
The value of the settlement, disclosed in a document presented on Thursday (20) in the Delaware Court of Justice, had been under seal since the trial was interrupted in July. A lawsuit filed by Meta investors alleged that board members inadequately handled the Cambridge Analytica data privacy scandal and improperly agreed to a $5 billion settlement with the U.S. Federal Trade Commission (FTC) to protect Zuckerberg.
Meta shareholders were seeking at least US$7 billion in compensation, arguing that directors paid an excessive amount in the agreement with the FTC to prevent Zuckerberg from having to pay out his own resources to cover part of the company’s financial loss. The settlement, which will be paid for by an insurance policy covering Meta’s directors, represents compensation of 3%. In a court filing, the company denied any wrongdoing and said the settlement did not constitute an admission of guilt.
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Understand the case
The case revolved around the revelation that a third-party company collected personal data from millions of Facebook users without their consent. Cambridge Analytica used the information after being hired by then-presidential candidate Donald Trump’s 2016 election campaign.
Representatives for Meta, a Menlo Park, Calif.-based company, and Zuckerberg did not immediately respond to emails seeking comment on the deal.
Meta shareholders sued Zuckerberg and other directors — including venture capitalist Marc Andreessen — in hopes that a judge would hold them personally liable for billions in fines and legal costs related to their repeated violation of the company’s privacy policies. In 2019, the FTC fined Facebook $5 billion after finding that the company violated a 2012 agreement with regulators that required users’ permission before sharing their data.
The settlement also requires Meta to make changes to some of its corporate governance policies, including strengthening privacy monitoring and making it harder to retaliate against employees who point out privacy-related failings, according to court documents. Meta also agreed to establish a code of conduct for directors focused on preventing conflicts of interest and strengthening compliance with “laws and regulations,” documents show.
Because it is a derivative action — which allows investors to sue board members on behalf of the company — the proposed settlement must be approved by Judge Kathaleen SJ McCormick, of the Court of Justice. The $190 million in insurance claims will be returned to the company, not individual investors.
Lawyers for Meta’s investors — which include pension funds and an individual shareholder — detailed the terms of the deal in a document designed to prepare it for approval by McCormick. Samuel Closic, attorney for the Meta shareholders who filed the lawsuit, said Thursday that he was “proud of the settlement” and eager to present it to McCormick.
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McCormick is the same judge who rejected Tesla CEO Elon Musk’s $55 billion compensation package. That decision, along with others — part of a legal crackdown on executive conflicts of interest — led several companies to move their headquarters to Nevada and Texas, including Tesla and Bill Ackman’s Pershing Capital. They alleged alleged judicial bias against technology sector leaders such as Musk and Zuckerberg.
The wave of corporate departures from Delaware, a state that finances more than a quarter of its budget with billions in corporate fees, led to a major overhaul of state corporate laws earlier this year. The changes were drafted by a panel of experts that included former judges who now work at law firms linked to Musk and Zuckerberg, including one involved in the Cambridge Analytica case.
Meta executives have publicly stated that they are evaluating the possibility of withdrawing their incorporation documents from Delaware, a state that is home to more than 60% of Fortune 500 companies. It is unclear whether approval of the deal will make it possible to relocate the company’s headquarters.
