The shareholders, led by Amalgamated Bank, accuse Facebook of misleading them about the misuse of user data and demand damages to recover the lost value of Facebook stock, which they claim dropped due to the company’s alleged misrepresentations.

The case, which centres on Facebook’s alleged failure to disclose known data risks, is one of two significant securities cases before the court this month.

On November 13, the court will hear a similar case involving AI chipmaker Nvidia. Rulings in these cases could raise the bar for private litigants seeking to hold companies accountable for alleged securities fraud.

Central to Facebook’s appeal is whether the company violated federal securities law by not disclosing a prior data breach when discussing business risks with investors.

Facebook portrayed such incidents as hypothetical. The lawsuit claims that Facebook breached the Securities Exchange Act of 1934 by not informing investors about a significant 2015 data breach involving Cambridge Analytica, a British political consulting firm, which compromised data from over 30 million users.

Facebook argued in its Supreme Court brief that it was not legally obligated to disclose that a warned-of risk had already happened. It claimed that risk disclosures were generally considered forward-looking, with its lawyer, Kannon Shanmugam, arguing, “A reasonable investor would understand risk disclosures to be forward-looking statements.”

During oral arguments, Justice Elena Kagan expressed scepticism toward Facebook’s argument.

“When we think about these questions, we're not looking only to lies or complete false statements. We're also looking to misleading statements or misleading omissions.”

Justice Samuel Alito added, “Isn't it the case that an evaluation of risks is always forward-looking?” Shanmugam replied “It is. And that is essentially what underlies our argument here.”

A lower court, the San Francisco-based Ninth Circuit Court of Appeals, previously revived the lawsuit after US  District Judge Edward Davila had dismissed it.

The plaintiffs argue that Facebook's alleged omission prevented investors from accurately assessing the company's risks, which constitutes fraud by omission.

The Supreme Court's decision, expected by June, could significantly impact the standard required for private investors to bring securities fraud claims against public companies and enable them to laugh all the way to the bank at the expense of shareholders.