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Facebook Whistleblower Claims – Securities Fraud or Not?

Facebook is in the headlines once again for all the wrong reasons. In 2019 it had to answer to the FTC for its knowledge that user data was being violated, for which it paid a record-breaking fine of 5 billion. Now a Facebook whistleblower has claimed the company knowingly misrepresented its efforts to protect users from misinformation. 

Why Is Facebook being accused of Securities Fraud?

Securities fraud is a kind of fraud that broadly covers misleading investors about securities. Many kinds of investments, stocks, bonds etc. are considered securities. Securities fraud can include:

  • Insider Trading – Illegally making a profit on securities when you have Insider knowledge or a tip-off
  • Misrepresentation – Misrepresentation to Investors is what Facebook is accused of doing. Misrepresenting some aspect of a company’s business or profitability could hurt the bottom line.
  • “Pump and Dump” – Pump and dump schemes, in which actors with interests in the securities hype up the investment to increase the price and then sell at a profit, are considered securities fraud. 

Facebook is being accused of potential securities fraud because investors have a right to know about practices that could affect the profitability of a business. Misleading investors about “materially significant” information that could affect company profitability could be considered securities fraud. 

There are questions about whether Facebook did knowingly mislead their investors. There are also questions about whether Facebook misleading its investors is “materially significant.” With securities fraud allegations, the deception must be “materially significant” to a “reasonable investor,” who would have cause to be concerned about damage to the company’s reputation or profits based on the deception. Another example is the Volkswagen emissions scandal in which the company rigged their vehicles to cheat on government emissions tests, causing the company to lose billions of dollars. 

Why The Facebook Accusations Might Be Securities Fraud

Internal Facebook documents allegedly contradict official statements on the company’s efforts to counteract misinformation. It was also revealed that the company had a policy of whitelisting “VIP” users, to get around the enforcement of their policy. Publicly the company claimed to have a “robust” system of enforcing rules misinformation. Yet in one particular document it is stated that “we are not doing what we say publicly.” This statement could amount to evidence that shows knowledge of intention. 

Why The Facebook Accusations Might Not Be Security Fraud

The problem with the charge of security fraud is that Facebook has stopped some of the practices listed in the documents. The timing of public statements and the internal disagreement could be an issue. Did the company say and do different things concurrently? The company could be seen as working through disagreements about how to pursue their policy effectively rather than deliberately misleading investors. It may be possible to argue that Facebook did not make specific enough statements about their practices to be directly contradicting their policy of enforcement. Furthermore, the argument over whether Facebook’s deception was “materially significant” to a reasonable investor is debatable. The alleged deception could amount to irresponsible practices, but it might not in fact hurt the bottom line. When a charge of securities fraud is brought it is often a federal crime. States do have securities fraud laws, but securities fraud is often investigated by the SEC. Any charge of securities fraud is serious and must be proved.

What To Do If You Are Accused of Securities Fraud

If you are accused of securities fraud, you should retain an experienced securities fraud attorney immediately. Securities fraud can incur civil penalties such as fines or license restriction. Federal securities fraud can also be punished with prison time of 5 years per offense. Probation is another punishment that is common with securities fraud. This can last several years. Fines and restitution are some of the most serious consequences of securities fraud. Fines can be crippling. Defendants could also be forced to pay restitution to anyone who has experienced a financial loss as a result of the fraud. At Dhar Law, we are experienced criminal law attorneys who defend complex white collar cases. In serious white collar crimes, the prosecution will push for a definition of your actions that could mean the difference between your freedom and your good name and prison time and/or fines. If you are being investigated by the SEC don’t wait to let the prosecution build a case against you. Contact the experienced federal criminal and white collar criminal law attorneys at Dhar Law so we can build a robust defense. 


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Heading up the firm, Vikas Dhar is widely recognized as a leader in the New England legal community. An accomplished business litigator and a “Top 40 Under 40” criminal defense attorney, he has also been honored as a New England Super Lawyer/Rising Star in the area of White-Collar Criminal Defense for each of the past six years by Boston Magazine.

I have the power and the skill to be able to save people from themselves. I can be your guide during the darkness. I can hold your hand and navigate you out of the darkness into the light.

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