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In the Court of Chancery of the State of Delaware Karen Sbriglio, Firemen’S ) Retirement System of St

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In the Court of Chancery of the State of Delaware Karen Sbriglio, Firemen’S ) Retirement System of St EFiled: Aug 06 2021 03:34PM EDT Transaction ID 66784692 Case No. 2018-0307-JRS IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE KAREN SBRIGLIO, FIREMEN’S ) RETIREMENT SYSTEM OF ST. ) LOUIS, CALIFORNIA STATE ) TEACHERS’ RETIREMENT SYSTEM, ) CONSTRUCTION AND GENERAL ) BUILDING LABORERS’ LOCAL NO. ) 79 GENERAL FUND, CITY OF ) BIRMINGHAM RETIREMENT AND ) RELIEF SYSTEM, and LIDIA LEVY, derivatively on behalf of Nominal ) C.A. No. 2018-0307-JRS Defendant FACEBOOK, INC., ) ) Plaintiffs, ) PUBLIC INSPECTION VERSION ) FILED AUGUST 6, 2021 v. ) ) MARK ZUCKERBERG, SHERYL SANDBERG, PEGGY ALFORD, ) ) MARC ANDREESSEN, KENNETH CHENAULT, PETER THIEL, JEFFREY ) ZIENTS, ERSKINE BOWLES, SUSAN ) DESMOND-HELLMANN, REED ) HASTINGS, JAN KOUM, ) KONSTANTINOS PAPAMILTIADIS, ) DAVID FISCHER, MICHAEL ) SCHROEPFER, and DAVID WEHNER ) ) Defendants, ) -and- ) ) FACEBOOK, INC., ) ) Nominal Defendant. ) SECOND AMENDED VERIFIED STOCKHOLDER DERIVATIVE COMPLAINT TABLE OF CONTENTS Page(s) I. SUMMARY OF THE ACTION...................................................................... 5 II. JURISDICTION AND VENUE ....................................................................19 III. PARTIES .......................................................................................................20 A. Plaintiffs ..............................................................................................20 B. Director Defendants ............................................................................26 C. Officer Defendants ..............................................................................28 D. Nominal Defendant .............................................................................29 E. Relevant Non-Party Directors .............................................................30 F. Relevant Non-Party Executives ..........................................................31 IV. ILLEGAL BUSINESS PLAN ALLEGATIONS ..........................................32 A. The FTC Investigates Facebook’s Unfair And Deceptive Privacy Practices, Leading To The 2012 Consent Order ....................32 Senators Call For An FTC Inquiry ...........................................32 The FTC Complaint ..................................................................36 The Terms Of Facebook’s 2012 Consent Order .......................52 B. Zuckerberg Responds To The FTC’s November 2011 Announcements By Falsely Asserting Facebook’s Innocence ...........60 1. Zuckerberg’s November 2011 Misrepresentations As To Users’ “Complete Control” Over Their Information, And Related False And Misleading Statements .......................61 Zuckerberg’s November 2011 Misrepresentations As To The FTC Complaint And The Circumstances Of The FTC Agreement .........................................................................64 C. Facebook Concocts And Implements A Business Plan Based On Monetizing Increasing Amounts Of Personal User Information Immediately Following Entry Of The 2012 Consent Order ......................................................................................65 Zuckerberg Develops A Business Plan To Monetize Personal User Information By Granting Third-Party Access To Facebook’s Graph API ............................................67 Zuckerberg And Sandberg Decide On A Business Model Of “Full Reciprocity,” Allowing Access To Personal User Information with Facebook Being The Broker ........................................................................................79 “Full Reciprocity” And “Whitelisting” Information Sharing Agreements Are Implemented in Facebook Platforms v3 And v4 Beginning In 2012 ..................................84 Facebook’s Whitelisting Practices Directly Contradict Defendant Zuckerberg’s Public Statements That Facebook Had Restricted Third Party Access To Friends Data ............................................................................100 Facebook Successfully Monetizes User Data, Prioritizing Growth At All Costs ............................................105 D. Facebook’s Privacy Settings Failed To Disclose The Extent Of Facebook’s Data Sharing With Third Parties In Violation Of The 2012 Consent Order ...................................................................107 E. Zuckerberg And Sandberg Use Facebook To Spy On Android Users by Continuously Stealing Their Call Logs And Text Messages ...........................................................................................110 F. Cambridge Analytica .........................................................................113 -ii- 4821-8897-9442, v. 1 G. Facebook’s Unfettered Sharing Of Personal User Information Becomes Public Knowledge And The Individual Defendants Engage In A Cover-Up ......................................................................119 The Massive Harvesting Of Personal User Information Is The Result Of A Willful Business Plan ..............................120 a. Facebook’s Nonexistent Controls Over User Information Allows Cambridge Analytica To Access The Personal User Information Of At Least 87 Million Facebook Users...........................................120 b. UK Regulators Find Facebook’s Business Plan Drives The Illicit Sharing Of Personal User Information ...................................................................122 The Individual Defendants Knew For Years That Cambridge Analytica Harvested Massive Amounts Of Personal User Information From Facebook, But Hid That Information From Public Disclosure ..............................126 H. Sandberg Admits That Facebook Knew About Cambridge Analytica For Two And A Half Years, But Took No Action ...........131 I. Congress Calls Defendant Zuckerberg To Question And Is Met With Dishonesty ........................................................................132 J. Facebook Also Misleads UK Regulators ..........................................144 K. The FTC And Other Regulators Open Investigations Into Facebook’s Continuing Illegal Conduct ............................................149 The FTC Announces An Investigation Into Facebook’s Violations Of The 2012 Consent Order ..................................149 The SEC, DOJ And FBI Open Their Own Inquiries Into Facebook’s Treatment Of User Information ...........................152 L. Facebook’s Impaired Governance Function Prevents It from Coming into Compliance with the 2012 Consent Order ...................153 -iii- 4821-8897-9442, v. 1 The Extent Of Facebook’s Ongoing, Vast Information Sharing Is Gradually Uncovered .............................................154 The Board Ignores Widespread Defection And Internal Warnings From Employees.....................................................160 a. Alex Stamos Departure .................................................160 b. Sandy Parakilas Raises Red Flags And Is Ignored .......164 c. Jan Koum Leaves Facebook Because Of Its Failures To Safeguard User Privacy .............................170 d. Desmond-Hellmann, Chenault And Zients Leave Because The Board Ignores Their Feedback And Concerns .......................................................................172 M. Facebook Incurs Historic Fines As A Result Of Its Misconduct ......174 The UK Information Commissioner’s Office Issues The Maximum Possible Penalty Due To Facebook’s Lack Of Transparency And Harvesting Of User Data .....................174 The FTC Fines Facebook A Record $5 Billion For Its Privacy Breaches .....................................................................175 Alleged Violations Of The 2012 Consent Order ....................176 The SEC Fines Facebook For Misleading Shareholders About The Risk Of Misuse Of User Data ...............................186 Individual Defendants’ User Privacy Violations Caused Numerous Other State And Foreign Regulatory Actions .......192 N. Facebook Fails To Reform Its Illicit Business Practices ..................201 O. Facebook’s Impaired Corporate Governance Function ....................207 The Board’s Duties And Presumption Of Director Knowledge Of The Company’s Core Business Plans ............207 -iv- 4821-8897-9442, v. 1 The Company’s Books And Records Confirm The Board’s Apathy, Inaction And Breaches Of Fiduciary Duty .........................................................................................211 The Board’s Failure To Review The Biennial Assessments Of Facebook’s Compliance With The 2012 Consent Order ................................................................212 The Evidence Concerning The Board’s Review Of Annual “SOC” Reports Only Confirms The Directors’ Failure To Ensure Compliance With The 2012 Consent Order’s Obligations For The Protection Of Personal User Information .....................................................................216 The Audit Committee’s Involvement In Approving Misleading Changes To SEC Disclosures, And The Directors’ Knowledge That Facebook’s Core Business Practices Were Attracting Increasing Regulatory Attention ..................................................................................227 P. The Board Fails To Reform Facebook’s Illegal Business Practices In The Wake Of Cambridge Analytica ..............................250 The Board Knows Facebook Continues To Share Vast Amounts Of Personal Information In Contravention Of The 2012 Consent Order .........................................................250 The Board’s Oversight Failures Are Revealed Through Internal Investigation, And Responded With Cosmetic Changes ...................................................................................255
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